-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, gVk+j6LvI1CvUwRJsvuSLkd4pF+5ComeL80HQMyKsjF3fjcyQOzYXeO2cmuoVo8s IMqmrGf5Uh8lQY4qbjJT8Q== 0000073020-94-000009.txt : 19940330 0000073020-94-000009.hdr.sgml : 19940330 ACCESSION NUMBER: 0000073020-94-000009 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHWEST NATURAL GAS CO CENTRAL INDEX KEY: 0000073020 STANDARD INDUSTRIAL CLASSIFICATION: 4924 IRS NUMBER: 930256722 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 000-00994 FILM NUMBER: 94518503 BUSINESS ADDRESS: STREET 1: 220 NW SECOND AVE CITY: PORTLAND STATE: OR ZIP: 97209 BUSINESS PHONE: 5032264211 10-K 1 MAIN DOCUMENT SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 _____ FORM 10-K (Check One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1993 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the Transition period from ___________ to____________ Commission file number 0-994 NORTHWEST NATURAL GAS COMPANY (Exact name of registrant as specified in its charter) Oregon 93-0256722 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 220 N.W. Second Avenue, Portland, Oregon 97209 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (503) 226-4211 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered - ------------------- ----------------------------------------- None None Securities registered pursuant to Section 12(g) of the Act: Title of each class Shares outstanding on February 28, 1994 - ------------------- --------------------------------------- Common Stock, $3 1/6 par value 13,219,706 Preference Stock, without par value 314,680 Preferred Stock, without par value 170,333 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ X ]. The aggregate market value of the shares of voting stock (common stock) held by non-affiliates of the registrant at February 28, 1994 was: $470,016,700 DOCUMENTS INCORPORATED BY REFERENCE List documents incorporated by reference and the Part of the Form 10-K into which the document is incorporated. Portions of the Proxy Statement of Company, dated April 15, 1994, are incorporated by reference in Part III. NORTHWEST NATURAL GAS COMPANY Annual Report to Securities and Exchange Commission on Form 10-K for the year 1993 Table of Contents PART I Page Item 1. Business General. . . . . . . . . . . . . . . . . . . . . . . 1 Service Area . . . . . . . . . . . . . . . . . . . . 2 Gas Supply . . . . . . . . . . . . . . . . . . . . . 2 Transportation . . . . . . . . . . . . . . . . . . . 7 Regulation and Rates . . . . . . . . . . . . . . . . 7 Competition and Marketing. . . . . . . . . . . . . . 10 Construction and Financing Programs. . . . . . . . . 12 Environment. . . . . . . . . . . . . . . . . . . . . 12 Employees. . . . . . . . . . . . . . . . . . . . . . 13 Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . 13 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . 14 Item 4. Submission of Matters to a Vote of Security Holders . . 15 Additional Item Executive Officers of the Registrant. . . . . . . . . . 16 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters. . . . . . . . . . . . . . . . . . 17 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . 19 Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition . . . . . . . . . . 20 Item 8. Financial Statements and Supplementary Data . . . . . . 32 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . 68 PART III Items 10. - 13. Incorporated by Reference to Proxy Statement . . . . 68 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . 68 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . 72 NORTHWEST NATURAL GAS COMPANY PART I ITEM 1. BUSINESS General - ------- Northwest Natural Gas Company (the Company) was incorporated under the laws of Oregon in 1910. The Company and its predecessors have supplied gas service to the public since 1859. The Company is principally engaged in the distribution of natural gas to customers in western Oregon and southwestern Washington, including the Portland metropolitan area. Basic industries served by the Company include pulp, paper and other forest products; the processing of farm and food products; lumber and plywood; the production of various mineral products; the manufacture of electronic, electrochemical and electrometallurgical products; metal fabrication and casting; and the production of machine tools, machinery and textiles. The City of Portland, Oregon is the principal retail and manufacturing center in the Columbia River Basin. It is a major port and growing nucleus for trade with Pacific Rim nations such as Japan and Korea. The Company has four subsidiaries, each of which is incorporated in the State of Oregon: Oregon Natural Gas Development Corporation (Oregon Natural), NNG Financial Corporation (Financial Corporation), NNG Energy Systems, Inc. (Energy Systems) and Pacific Square Corporation (Pacific Square). Oregon Natural is engaged in natural gas exploration, development and production in Oregon and other western states, and, through its wholly-owned subsidiary, Canor Energy Ltd. (Canor), an Alberta Corporation, also engages in gas and oil exploration, development and production in Alberta and Saskatchewan, Canada. Oregon Natural also holds an equity investment in a Boeing 737-300 aircraft. (See Part I, Item 2, and Part II, Item 8, Note 2 and Note 11.) Financial Corporation holds financial investments as a limited partner in four solar electric generating plants, four wind power electric generation projects and a hydroelectric project, all located in California, and in a low-income housing project in Portland. Financial Corporation also arranges short- term financing for the Company's operating subsidiaries. (See Part II, Item 8, Note 11.) Energy Systems, through its wholly-owned subsidiary, Agrico Cogeneration Corporation (Agrico), formerly owned a 25 megawatt cogeneration plant near Fresno, California. In December 1991, Agrico filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code. In November 1992, Agrico entered into a settlement with -1- Pacific Gas & Electric Company (PG&E), the utility which purchased plant energy and capacity from Agrico, and Wellhead Electric Company (Wellhead), the contract operator of the Agrico plant, with respect to PG&E's claimed overpayments to Agrico for power purchased in 1990 and 1991. In January 1994, the California Public Utilities Commission's order approving Agrico's settlement with PG&E and Wellhead became final, and the U.S. Bankruptcy Court entered its order confirming Agrico's reorganization plan. The Court's order and the reorganization plan became final and the sale of Agrico's assets to Wellhead closed in February 1994. (See Part I, Item 3, and Part II, Item 8, Note 3.) Pacific Square is engaged in real estate management, principally in connection with two office buildings in Portland and other Company-owned properties adjacent to those buildings. Pacific Square has entered into an agreement to sell its interests in the partnership that owns these buildings. (See Part I, Item 2, and Part II, Item 8, Note 2 and Note 12.) Service Area - ------------ The Oregon Public Utility Commission (OPUC) has allocated to the Company as its exclusive service area a major portion of western Oregon, including most of the fertile Willamette Valley and the coastal area from Astoria to Coos Bay. The Company also holds certificates from the Washington Utilities and Transportation Commission (WUTC) granting it exclusive rights to serve portions of three Washington counties bordering the Columbia River. Gas service is provided in 95 cities, together with neighboring communities, in 16 Oregon counties, and in nine cities and neighboring communities in three Washington counties. The Company's service areas have a population of about 2,600,000, including about 78 percent of the population of the State of Oregon. Gas Supply - ---------- General ------- The Company meets the needs of its core market (residential, commercial and firm industrial) customers through natural gas purchases from a variety of suppliers. The Company has a diverse portfolio of short-, medium- and long-term firm gas supply contracts, and, during periods of peak demand, supplements this supply with gas from storage facilities which are either owned by or contractually committed to the Company. Natural gas for the Company's core market is transported by Northwest Pipeline Corporation (NPC) under a contract expiring September 30, 2013, providing for the delivery -2- of firm requirements of up to 2,460,440 therms(1) per day. NPC's rates for this service are established by the Federal Energy Regulatory Commission (FERC) under NPC's primary firm transportation rate schedule, as amended or superseded from time to time. Commencing in April 1993, the Company added 500,000 therms per day of firm transportation capacity for its core market through participation in an expansion of NPC's system, and an expansion of Pacific Gas Transmission's (PGT) pipeline through central Oregon, southeastern Washington and northern Idaho. In combination, this additional firm transportation capacity provides a connection through Alberta Natural Gas Company Ltd.'s (ANG) system to producing regions of Alberta, Canada. The cost of gas to supply the Company's core market consists of amounts paid to suppliers of the gas commodity and peaking services plus transportation charges paid to pipelines in the United States and Canada. While the rates for pipeline transportation and peaking services are regulated, the prices of gas purchased under the supply contracts are not. Although both gas commodity and pipeline costs have increased, the Company has been able to minimize the effect of such increases on core market prices by taking advantage of medium-term fixed price supply contracts negotiated in 1991, and by negotiating off-system sales agreements which partially offset pipeline costs in periods when the core market does not require full utilization of firm pipeline capacity. The Company supplies many of its larger industrial interruptible customers (those customers with full or partial dual fuel capabilities) through gas transportation service, delivering gas purchased by these customers directly from suppliers. Core Market System Supply ------------------------- The Company purchases gas for its core market from a variety of suppliers located in the western United States and Canada. At December 31, 1993, the Company had 19 contracts with 15 suppliers with original terms of from four months to 15 years which provided for a maximum of 2,718,250 therms of firm gas per - ----------------------- [FN] (1) For gas quantities expressed in therms, one therm is equivalent to 100 cubic feet of natural gas at an assumed heat content of 1,000 British Thermal Units (Btu's) per cubic foot. MMBtu means one million Btu's, or 10 therms. For gas quantities expressed in cubic feet, unless otherwise indicated, all volumes are stated at a pressure base of 14.73 pounds per square inch absolute at 60 degrees Fahrenheit, and in some instances are rounded to the nearest major multiple. Mcf means one thousand cubic feet, Mmcf means one million cubic feet and Bcf means one billion cubic feet. -3- day during the peak winter season and 1,804,060 therms per day during the non-peak season. About three-fourths of this supply comes from Canada and the remainder from the United States, including a small portion which is locally produced in Oregon. The terms of the Company's principal purchase agreements are summarized as follows: An agreement expiring November 1, 2003 with CanWest Gas Supply, Inc. (CanWest), an aggregator for gas producers in British Columbia, Canada, entitles the Company to purchase up to approximately 960,000 therms of firm gas per day. This agreement contains a demand and commodity pricing structure and a provision for annual renegotiations of the commodity price to reflect then-prevailing market prices. The demand charges reflect the reservation of firm transportation space on the Westcoast Energy, Inc. pipeline system in British Columbia. These demand charges are subject to change as approved by the Canadian National Energy Board (NEB) in rate proceedings similar to those conducted in the United States by the FERC. Under this agreement, the Company also has the ability to purchase gas between May 1 and October 31 each year for injection into storage facilities at a commodity price, to be renegotiated annually, substantially below the commodity price for gas for current use. This contract contains a pro rata market share commitment and minimum purchase obligations. An agreement also expiring November 1, 2003 with Amoco Canada Petroleum Company, Ltd., on terms similar to the CanWest agreement, entitles the Company to purchase up to approximately 83,300 therms of firm gas per day. This gas is aggregated from production in Alberta and the Canadian Yukon and Northwest Territories. This contract contains a pro rata market share commitment and minimum purchase obligations. An agreement with Poco Petroleums, Ltd. (Poco), a Canadian producer, expiring September 30, 2003, entitles the Company to purchase up to 155,160 therms per day during the winter and up to 110,000 therms per day during the summer. The gas is produced in Alberta and makes use of the Company's added capacity from transportation on the PGT and ANG systems. Two agreements expiring September 30, 2003 with Westcoast Gas Services entitle the Company to purchase up to 140,000 therms per day year-round, plus up to 92,750 therms per day of winter season supply. This gas is produced in Alberta and makes use of the Company's new capacity on the PGT and ANG systems. Pricing for supplies under this agreement can be renegotiated annually. The current pricing arrangement includes demand charges for upstream capacity on the Canadian pipeline systems, a monthly reservation charge and a fixed commodity price. An agreement expiring October 31, 1996 with Poco entitles the Company to purchase up to 200,000 therms of firm gas -4- per day. This agreement contains a demand and commodity pricing structure, a provision for annual renegotiations of the commodity price, minimum purchase obligations and a pro rata market share commitment. The demand charge is subject to NEB regulation. This gas is produced in Alberta and British Columbia. An agreement expiring September 30, 2000 with Summit Resources Ltd. entitles the Company to purchase up to 77,580 therms per day during the winter and up to 50,000 therms per day during the summer. This gas is produced in Alberta and makes use of the Company's added capacity from transportation on the PGT and ANG systems. Pricing for supplies under this agreement can be renegotiated annually. The current pricing arrangement includes demand charges for upstream capacity on NOVA Corporation of Alberta's system and commodity charges that are separated into three tiers. An agreement expiring October 31, 1994 with Natural Gas Clearinghouse, one of the largest independent gas marketers in the United States, entitles the Company to purchase up to 100,000 therms of firm gas per day. This gas is produced in the United States Rocky Mountain region. The pricing structure for this agreement contains a monthly reservation charge plus a commodity charge based on monthly trade indices. Prices are renegotiated annually. This contract contains a pro rata market share commitment. An agreement with Nahama & Weagant Energy Company (NWEC) expiring January 1, 1995 entitles the Company to purchase all of the production from the wells at Mist, Oregon that previously had been under contract with Atlantic Richfield (ARCO). Although production from these wells continues to decline, it provides a supply delivered within the Company's service territory. Production from these wells averages nearly 50,000 therms per day and is priced based on the Company's weighted average cost of gas. An agreement with NWEC expiring December 31, 1994 entitles the Company to purchase all of the production from new wells at Mist. Production from these wells currently provides the Company with more than 70,000 therms per day. Pricing is based on an average of monthly spot price indices adjusted for delivery to the Company's service territory. During 1993, new purchase agreements for firm gas were entered into with Vastar Resources, Inc. for 200,000 therms per day; with Coastal Gas Marketing Company for 180,000 therms per day; with Enron Gas Marketing for 100,000 therms per day; with Grand Valley Gas Company for 100,000 therms per day; with Universal Resources for 50,000 therms per day; and with Union Pacific Fuels for 100,000 therms per day. These agreements are similarly structured, as follows: each is for a four-month term, from November 1, 1993 through February 28, 1994; each provides volumes based on a combination of reservation charges and indexed commodity prices; and all but one has a minimum volume obligation -5- at a fixed price. All of the gas purchased under these agreements is produced in the United States Rocky Mountain and San Juan Basin regions. The Company also purchases small volumes of gas on the spot (30 days or less) market as necessary to supplement its firm core market supplies, to extend the deliverability of its storage resources and to take advantage of available favorable pricing opportunities. During 1993, less than one percent of the Company's purchases for its core market was from this source. The Company manages gas purchases for its core market in a manner that will meet customers' needs at reasonable prices. The Company believes that gas supplies available from suppliers in the western United States and Canada are adequate to serve its core market customers for the foreseeable future. Future gas costs, generally, will track prevailing market conditions for supplies of similar reliability. Peaking Supplies ---------------- During peak demand periods, the Company supplements its firm gas supplies through Company-owned or contracted peaking facilities in which gas can be stored during periods of low demand for redelivery during periods of peak demand. In addition to enabling the Company to meet its peak demand, these facilities make it possible to lower the cost of gas by allowing the Company to reduce its pipeline transportation contract demand and to purchase gas for storage during the summer months when purchase prices are generally at their lowest. The Company has contracts with NPC for firm storage services from the underground gas storage field at Jackson Prairie and the liquefied natural gas (LNG) facility at Plymouth, Washington which together provide a daily deliverability of 831,380 therms and a total seasonal capacity of 13,082,647 therms through October 2004. In addition, the Company has contracted with NPC for an additional daily deliverability of 94,670 therms and an additional 2,779,970 therms of seasonal capacity from the Jackson Prairie storage field through April 1996. The Company owns and operates two LNG plants which it uses to liquefy gas during the summer months for redelivery into its system during the peak winter season. These two plants, one located in Portland and the other near Newport, Oregon, provide a maximum daily deliverability of 1,800,000 therms and a total seasonal capacity of 17,000,000 therms. The LNG plants provide a cost-effective winter peaking resource of high reliability and flexibility. The Company also owns and operates an underground gas storage facility at Mist, Oregon. This facility has a maximum daily deliverability of 1,000,000 therms and a total seasonal working gas capacity of about 70,000,000 therms, or about 15 -6- percent of the Company's annual core customer usage. These underground gas storage facilities provide a reliable, cost- effective winter supply that is available for a much longer period than the LNG plants. In January 1993, the Company and Portland General Electric Company (PGE) entered into an agreement expiring in 2010 that provides the Company with a cost-effective winter peaking supply and PGE with needed firm pipeline transportation. With certain limitations, the Company may interrupt gas deliveries to PGE, use that gas for the Company's own markets, and compensate PGE by paying PGE's cost for replacement fuel oil. The daily volume is 300,000 therms, increasing to a maximum of 760,000 therms in November 1995. This agreement makes it possible for the Company to recover the full cost of firm transportation capacity while obtaining firm gas deliveries during peak load periods at a cost that is competitive with other peaking services. Transportation - -------------- By 1992, most of the Company's large industrial interruptible sales customers had switched from sales service to transportation service. Since 1992, about half of these customers have returned to sales service, primarily because the Company's industrial sales rates were lower than those customers' costs of purchasing and shipping their own gas. The ability of industrial customers to switch between sales service and transportation service has assisted the Company in retaining most of these customers and has not had a material effect on the Company's results of operations. (See "Competition and Marketing" and Part II, Item 7.) Regulation and Rates - -------------------- The Company is subject to regulation with respect to, among other matters, rates, systems of accounts and issuance of securities by the OPUC and the WUTC. In 1993, approximately 90.0 percent of the Company's gas deliveries and 94.6 percent of its utility operating revenues were derived from Oregon and the balance from Washington. The Company is exempt from the provisions of the federal Natural Gas Act by order of the Federal Power Commission. The Company's most recent general rate case in Oregon, which was effective in 1989, authorized rates designed to produce a return on common equity of 13.25 percent. The most recent general rate increase in Washington, which was effective in 1986, authorized rates also designed to produce a return on common equity of 13.25 percent. Actual revenues resulting from the OPUC's and WUTC's general rate orders are dependent on weather, economic conditions, competition and other factors affecting gas usage in the Company's service area. The Company has no plans to -7- file general rate cases in either Oregon or Washington in 1994. The Company's returns on average common equity from consolidated operations were 5.8 percent in 1992 and 13.7 percent in 1993. In Oregon, the Company has a Purchased Gas Cost Adjustment (PGA) tariff under which the Company's net income derived from Oregon operations is affected only within defined limits by changes in purchased gas costs. The PGA tariff provides for periodic revisions in rates due to changes in the Company's cost of purchased gas. Costs included in the PGA adjustments are based on the Company's gas requirements for the 12-month period ended each June 30. Any resulting rate adjustments, derived from gas prices negotiated for the gas supply contract year commencing on the following November 1, are made effective on the following December 1. The PGA tariff also provides that 80 percent of any difference between actual gas commodity costs and related costs incorporated into rates will be deferred for amortization in subsequent periods. If actual gas commodity costs exceed those incorporated in rates, the Company subsequently will adjust its rates upward to recover 80 percent of the deficiency from core market customers. Similarly, if actual commodity costs are lower than those reflected in rates, rates will be adjusted downward to refund to core market customers 80 percent of such gas commodity cost savings. In Washington, the Company is permitted to track increases and decreases in its cost of purchased gas coincidental with their incurrence, with the result that net income is not directly affected by changes in purchased gas costs. In April 1992, the FERC issued Order No. 636 and subsequently largely affirmed that order on rehearing in Order Nos. 636-A and 636-B. These orders required significant changes in the structure of service provided by interstate pipelines and required such pipelines to restructure or "unbundle" their services and eliminate their role as gas merchants. In October 1992, NPC, the primary interstate pipeline serving the Company, made a filing with the FERC to comply with Order No. 636 and filed a general rate case seeking FERC approval to increase its rates. The impact of these filings, as approved by the FERC, was an increase in the Company's annual cost of interstate pipeline service of approximately $16.5 million effective April 1, 1993. NPC's rate increase also included the cost of its $432 million "Phase I Expansion" completed in April 1993, under which the Company subscribed to 500,000 therms per day of new firm capacity, and reflected a change in NPC's rate design to the FERC-mandated "straight fixed-variable" method, which collects all fixed costs through monthly demand charges. In April 1993, the Company filed with the OPUC for rate increases averaging 6.2 percent in its residential, commercial and industrial firm schedules to offset the Company's higher costs for interstate pipeline capacity approved by the FERC for -8- NPC. The OPUC approved these rate increases effective May 1, 1993. Effective June 1, 1993, the WUTC approved rate increases averaging 6.7 percent for the Company's Washington customers to offset the same cost increases. In August 1993, the Company filed with the OPUC for rate increases averaging 3 percent. The OPUC approved the increases effective October 1, 1993. These rate increases were due to the removal of temporary rate discounts in effect since November 1990 to refund to customers gas cost savings and pipeline rate refunds resulting from NPC's transition to "open access" transportation. In November 1993, the Company filed for rate increases under its PGA tariffs averaging 3.7 percent for Oregon customers and 7.6 percent for Washington customers. The OPUC and WUTC approved these increases for their respective states effective December 1, 1993. These rate increases passed through to customers the effect of higher gas costs, and removed temporary rate discounts related to prior gas cost savings which had applied to rates for firm gas service since December 1992. In connection with filings by the Company each year under the PGA tariff, the OPUC has reviewed the Company's earnings as determined for a recently-completed 12-month period, normalized for average weather conditions and certain other adjustments to revenues or expenses as applied in the Company's last general rate case. The OPUC has taken the position that it may reduce the amount of a rate increase requested to offset higher gas costs if its review of normalized earnings were to show that the resulting return on equity would exceed a reasonable range for the Company under then-current financial conditions. Based upon such a review in 1993, the Company and the OPUC staff negotiated an agreement whereby the Company reduced the revenue increase requested pursuant to its November 1993 PGA filing by about $2,334,000 per year. The Company expects the OPUC to conduct a similar review in connection with its PGA filing to be effective in December 1994, but cannot predict whether the effect, if any, of such a review on future earnings would be material. In Oregon, the Company has an Interruptible Sales Adjustment (ISA) tariff schedule which levels margin (sales price less cost of gas) fluctuations resulting from the volatility of sales to large industrial interruptible customers caused by price competition between natural gas and residual fuel oil. Under the ISA tariff schedule, the Company's rates are increased or decreased at least annually to compensate for deviations in actual industrial interruptible margins from assumed base margins. If the actual margin is below the base margin for any month, the Company's rates applicable to core market customers are adjusted upward to recover 80 percent of the margin deficiency, plus interest. Likewise, if the actual margin is above the base margin, rates subsequently are adjusted downward to return 80 percent of the margin excess, plus interest. At -9- year-end 1993, the ISA account had a credit (refund) balance of $2.4 million. This tariff schedule enhances the Company's opportunity to achieve its allowed rate of return and reduces fluctuations in earnings due to changes in industrial interruptible sales. The OPUC and WUTC have approved transportation tariffs under which the Company may contract with customers to deliver customer-owned gas. Under these tariffs, revenues from the transportation of customer-owned gas, except that of large industrial customers having the capability of bypassing the Company's system, generally are equivalent to the margins that would have been realized from sales of Company-owned gas. (See "Transportation" and "Competition and Marketing".) The OPUC and WUTC have instituted "least-cost planning" processes under which utilities develop plans defining alternative growth scenarios and resource acquisition strategies. In 1991, the OPUC and WUTC acknowledged and accepted the Company's submissions of its first Least Cost Plan, and required further planning during 1992 and 1993, including the development of demand-side (conservation) resources. In October 1993, the Company filed its 1993 Integrated Resource (Least Cost) Plan, with the OPUC and the WUTC. The plan discusses potential growth in gas demand and describes a range of possible future supply-side and demand-side resource options to meet the demand. The plan forecasts growth in peak day load averaging 2.9 percent per year from 1993 to 2002, 2.3 percent from 1993 to 2012 and 2 percent from 1993 to 2022. The long-term resources available to meet this growth include the interstate pipelines, storage, conservation and long-term industrial contracts with provisions for the recall of released pipeline capacity and gas supplies. An updated Least Cost Plan will be filed in mid-1994 in Oregon and then in Washington. Competition and Marketing - ------------------------- Although the Company has no direct competition in the territory it serves from other natural gas utility distributors, it competes with NPC to serve large industrial customers; with oil and, to a lesser extent, electricity, for industrial uses; with oil, electricity and wood for residential use; and with oil and electricity for commercial uses. Competition among these forms of energy is based on price, quality of service, efficiency and performance. In 1993, the Company maintained its competitive price advantage over electricity and approximate price parity with fuel oil in both the residential and commercial markets. Throughout 1993, natural gas rates continued to be substantially lower than rates for electricity provided by the investor-owned utilities which serve approximately 75 percent of the homes in the Company's Oregon service area. The Company believes that this rate advantage will continue for the foreseeable future. As a result of substantial price increases in recent years by the -10- Bonneville Power Administration, the wholesale supplier of much of the electricity sold by publicly-owned electric utilities in the Pacific Northwest, natural gas for home heating also is more competitive with electricity provided by public utility districts. During 1993, the Company provided gas for spaceheating to about 85 percent of the new single family homes built within the reach of the Company's system. The relatively low (estimated at between 30 and 35 percent) residential (single family and attached dwelling) saturation of natural gas in the Company's service territory, together with the price advantage of natural gas compared with electricity and its operating convenience over fuel oil, provides the potential for continuing growth in the residential conversion market. In 1993, 17,941 net (after subtracting disconnected or terminated services) residential customers were added, including 8,710 units of existing residential housing which were reconnected to the system or were converted from oil or electric appliances to natural gas. More than half of these customers also use gas for water heating. In addition, 1,501 net commercial customers were connected in 1993. The net total of all new customers added in 1993 was 19,449. This constituted a growth rate of 5.5 percent, more than double the national average for local distribution companies as reported by the American Gas Association. Residential and commercial volumes increased 26.8 percent to 481.3 million therms in 1993, largely due to increased heating requirements resulting from colder weather. For the year 1993, temperatures in the Company's service territory, as expressed in heating degree days, were 22 percent colder than those of 1992, and were 3 percent colder than the 20-year average. Residential and commercial revenues in 1993 constituted approximately 80 percent of the Company's total utility operating revenues which were derived from 46 percent of the total therms delivered. (See Part II, Item 7.) Natural gas sales and transportation deliveries to industrial firm customers during 1993 totalled 99.8 million therms which was 5.6 percent above the 1992 level of 94.5 million therms. In 1993, 10 percent of total utility operating revenues and 10 percent of total therms delivered were derived from deliveries to industrial firm customers. Total natural gas sales and transportation deliveries to industrial interruptible customers decreased 22.0 percent in 1993, from 591.1 million therms in 1992, to 462.5 million therms in 1993. These deliveries included the transportation of 29.3 million therms to two electric generating plants in 1993, down from 165.2 million therms transported to the same plants in 1992. In 1993, 10 percent of total utility operating revenues and 44 percent of total therms delivered were derived from sales and transportation deliveries to industrial interruptible customers. -11- The Company and most of its largest industrial customers have entered into high-volume interruptible transportation agreements to replace agreements that were scheduled to expire. During 1993, the Company negotiated new agreements with these customers on a case-by-case basis with terms extending from two years to ten years. These agreements are designed to provide rates that are competitive with costs for alternative fuels, such as heavy oil, by reducing the per-therm transportation rate. They also are designed to provide rates competitive with "bypass" (direct connection to interstate pipelines) by applying fixed charges that vary with each customer's distance from NPC's facilities. These agreements prohibit bypass during their terms. In November 1993, the Company's second largest industrial customer, the James River Corporation plant at Camas, Washington, switched to NPC for the delivery of gas, thus bypassing the Company's system. This customer accounted for about 2.7 percent of total deliveries and 0.2 percent of total revenues in 1992. The Company does not expect a significant number of its other large customers to bypass its system in the foreseeable future since these customers typically are served under tariffs which are designed to be competitive with capital and operating costs of direct connections to NPC's system. (See Part II, Item 7.) In February 1994, the OPUC authorized the Company to enter into agreements with industrial customers, without prior regulatory approval, providing for the Company to release, at negotiated rates, rights to portions of its firm pipeline capacity and natural gas transportation services. In its order authorizing the Company to enter into such agreements, the OPUC concluded that rate flexibility was warranted because competition for such services exists. The OPUC's order, which implements legislation adopted by the Oregon legislature in 1993, allows the Company to compete effectively in this market. Eighty percent of all positive net revenues (gross revenues less the actual cost of gas or pipeline capacity) generated from these agreements will be credited to core customer gas costs. Construction and Financing Programs - ----------------------------------- See Part II, Item 7, Management's Discussion and Analysis of Results of Operations and Financial Condition. Environment - ----------- The Company is subject to air, water and other environmental regulation by state and federal authorities and has complied in all material respects with applicable regulations. Compliance with these regulations has had no material effect upon -12- the capital expenditures, earnings or the competitive position of the Company. The Company owns property in Linnton, Oregon and previously owned property in Salem, Oregon that were former sites of gas manufacturing plants. Both sites are under investigation for potential remediation. (See Part II, Item 7, and Item 8, Note 12.) Employees - --------- At year-end 1993, the Company had 1,293 employees, of which 932 were members of the Office and Professional Employees International Union, Local No. 11. These union employees approved a five-year Joint Accord covering wages, benefits and working conditions effective April 1, 1992. ITEM 2. PROPERTIES The Company's natural gas distribution system consists of 9,313 miles of mains, as well as service pipes, meters and regulators, and gas regulating and metering stations. The mains and feeder lines are located in municipal streets or alleys pursuant to valid franchise or occupation ordinances, in county roads or state highways pursuant to valid agreements or permits granted pursuant to statute, or on lands of others pursuant to valid easements obtained from the owners of such lands. The Company also holds all necessary permits for the crossing of the Willamette River and a number of small rivers by its mains. The Company owns service facilities in Portland, as well as various satellite service centers, garages, warehouses, and other buildings necessary and useful in the conduct of its business. It leases office space in Portland for its corporate headquarters. (See below.) District offices are maintained on owned or leased premises at convenient points in the distribution system. The Company owns LNG facilities in Portland and near Newport, Oregon, and also owns two natural gas reservoirs at Mist, Oregon. The Company considers all of its properties currently used in its operations, both owned and leased, to be well maintained, in good operating condition, and adequate for its present and foreseeable future needs. The Company's Mortgage and Deed of Trust constitutes a first mortgage lien on substantially all of the real property constituting its utility plant. Oregon Natural holds interests in United States oil and gas leases covering 52,606 net acres. These interests are located in western Oregon, California, Sweetwater County, Wyoming, and La Plata and Rio Blanco Counties in Colorado. Canor owns interests in 19 gas properties and six oil properties in -13- southern Alberta and southern Saskatchewan covering mineral rights on 124,052 net acres. Most Canadian gas production is sold under long-term contracts to markets in both Canada and the United States. Oregon Natural also holds an equity investment in a Boeing 737-300 aircraft. Energy Systems formerly owned a 25 megawatt combined-cycle cogeneration system near Fresno, California through its wholly-owned subsidiary, Agrico, which filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code in December 1991. The U.S. Bankruptcy Court confirmed Agrico's reorganization plan in January 1994, allowing the sale of Agrico's assets to Wellhead Electric Company, the contract operator of the Agrico facility, to close in February 1994. (See Part I, Item 3, and Part II, Item 7, and Item 8, Note 2 and Note 3.) Pacific Square, the Company's subsidiary engaged in real estate management, owns a one-half interest in One Pacific Square, a 227,000 square foot office building in Northwest Portland, through a partnership known as Pacific Square Associates. The Company's corporate headquarters occupy about 63 percent of this building which is 100 percent leased. Pacific Square Associates, in partnership with the Portland Metropolitan Chamber of Commerce, owns a 31,000 square foot office building adjacent to One Pacific Square. This building is fully leased. In January 1994, Pacific Square entered into an agreement to sell all of its partnership interests in the two buildings to Hillman Properties Northwest (Hillman), Pacific Square's joint venture partner. Under the agreement, Hillman will purchase Pacific Square's interests in the Pacific Square Associates partnership and assume all of the partnership's joint obligations. The transaction is expected to close by the end of April 1994. ITEM 3. LEGAL PROCEEDINGS The Company previously reported that Agrico had entered into a conditional settlement with PG&E and Wellhead with respect to PG&E's claimed overpayments to Agrico for power purchased in 1990 and 1991. (See Part II, Item 8 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992.) In December 1993, this settlement was approved by the California Public Utilities Commission. In January 1994, the U.S. Bankruptcy Court confirmed Agrico's reorganization plan, including the terms of the settlement with PG&E and Wellhead. Following such confirmation, in February 1994, Agrico's assets were sold to Wellhead in a transaction that will not have a material effect on 1994 earnings. Under the terms of the sale to Wellhead, Energy Systems received $860,000 in cash and $2.4 million in notes in return for its secured debt interests in Agrico. In March 1994, Energy Systems provided a fund of $150,000 from the cash proceeds for pro rata distribution to Agrico's unsecured creditors. (See Part II, Item 8, Note 3.) -14- The Company is party to certain legal actions in which claimants seek material amounts. Although it is impossible to predict the outcome with certainty, based upon the opinions of legal counsel, management does not expect disposition of these matters to have a material adverse effect on the Company's financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the year ended December 31, 1993. -15- ADDITIONAL ITEM. EXECUTIVE OFFICERS OF THE COMPANY
Age at December 31, Positions held during Name 1993 last five years - ------------------ ---------- --------------------------------------- Robert L. Ridgley 59 President and Chief Executive Officer (1985- ); Director (1984- ); Chairman of the Executive Committee of the Board (1985- ). Bruce R. DeBolt 46 Senior Vice President, Finance, and Chief Financial Officer (1990- ); Senior Vice President, Finance and Administration (1987-90); General Counsel (1983-90). Dwayne L. Foley 48 Senior Vice President, Operations and Information Services (1992- ); Senior Vice President, Gas Operations and Information Services (1990-92); Vice President, Gas Supply and Pipeline Relations (1985-90). Paul L. Hathaway 59 Senior Vice President, Districts and Administrative Services (1992- ); Senior Vice President, Marketing, Districts and Administrative Services (1990-92); Senior Vice President, Market Services and Human Resources (1987-90). Michael S. McCoy 50 Senior Vice President, Customer Services Division (1992- ); Vice President, Operations (1990- 92); Vice President, Districts (1984-90). Bruce B. Samson 58 Senior Vice President, Public Affairs (1990- ); General Counsel (1990- ); Senior Vice President, Regulatory Affairs (1990); President-Public Policy, U. S. WEST Communications (1989); Vice President-Legal, U. S. WEST Communications (1987-88). Diana J. Johnston 49 Vice President, Human Resources (1992- ); Manager, Customers Office Department (1989-92); Superintendent, Stores Section (1987-89). C. J. Rue 48 Secretary (1982- ); Assistant Treasurer (1987- ). D. James Wilson 54 Treasurer and Controller (1987- ). Each executive officer serves successive annual terms; present terms end May 26, 1994. There are no family relationships among the Company's executive officers.
-16- PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) The outstanding common stock of the Company is traded in the over-the-counter market and its price and volume data are reported by the National Association of Securities Dealers Automated Quotation (NASDAQ) system. The Company's common stock is included in the NASDAQ National Market System through which the high, low and closing transaction prices, as well as volume data, are reported. The Company's common stock is included on the Federal Reserve Board's list of over-the-counter securities determined to be subject to margin requirements under the Board's regulations. The quarterly high and low closing trades for the Company's common stock, as quoted on the NASDAQ National Market System and published by the Wall Street Journal, were as follows: ------------------- 1993 1992 ------------------- ------------------ Quarter Ended High Low High Low - ------------- ------- ------- ------- ------- March 31 $31-1/2 $28-1/2 $31 $27-1/2 June 30 34 30-3/4 30-1/2 26-1/2 September 30 38 34 33 29 December 31 36-3/4 32 33-3/4 28-1/4 The closing quotation for the common stock on December 31, 1993 was $34-1/4. On December 31, 1992 the closing quotation was $28-1/2. The Company's convertible preference stock $2.375 Series is traded in the over-the-counter market. Because of the small number of shares of this series outstanding trading is infrequent. The quarterly high and low closing bid price quotations reported by NASDAQ were as follows: Bid Prices ------------------------------------------ 1993 1992 ----------------- ----------------- Quarter Ended High Low High Low - ------------- ---- --- ---- --- March 31 $51 $47-1/2 $48-1/4 $44-1/4 June 30 55-1/4 49-3/4 47-3/4 43 September 30 59 55-1/4 51 47-3/4 December 31 59 52-1/2 51 47-1/2 The closing quotations for the convertible preference stock on December 31, 1993 and December 31, 1992 were $53-1/2 Bid, $57-1/2 Ask and $47-1/2 Bid, $51-1/2 Ask, respectively. Outstanding shares are convertible into shares of common stock at -17- a rate of 1.6502 shares of common stock for each share of convertible preference stock. (b) As of January 31, 1994 there were 13,181 holders of record of the Company's common stock and 138 holders of record of its convertible preference stock. (c) The Company has paid quarterly dividends on its common stock in each year since the stock first was issued to the public in 1951. Annual common dividend payments have increased each year since 1956. Dividends per share paid during the past two years were as follows: Payment Date 1993 1992 ------------ ---- ----- February 15 $0.43 $0.43 May 15 0.44 0.43 August 16 0.44 0.43 November 15 0.44 0.43 ----- ----- Total per share $1.75 $1.72 ===== ===== It is the intention of the Board of Directors to continue to pay cash dividends on the Company's common stock on a quarterly basis. However, future dividends will necessarily be dependent upon the Company's earnings, its financial condition and other factors. The Company's Dividend Reinvestment and Stock Purchase Plan permits registered owners of common stock to reinvest all or a portion of their quarterly dividends in additional shares of the Company's common stock at the current market price. Shareholders also may invest cash on a monthly basis in additional shares at the current market price. The Plan was amended effective January 1, 1994 to allow shareholders to invest up to $50,000 per calendar year. Previously shareholders were allowed to invest up to $5,000 per quarter. During 1993, with about 50 percent of the Company's shareholders participating, dividend reinvestments and optional cash investments under the Plan aggregated $5.2 million and resulted in the issuance of 154,900 shares of common stock. During the sixteen years the Plan has been available the Company has issued and sold 2,676,800 shares of common stock which produced $49.1 million in additional capital. -18- Item 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data concerning the Company's operations and financial condition.
Operating revenues and cost of sales ($000): 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- Sales revenues: Residential $168,217 $124,834 $142,056 $129,830 $121,938 Commercial 103,476 78,614 90,263 84,463 81,710 Industrial - firm 31,340 24,867 25,222 24,603 21,502 - interruptible 18,884 6,920 3,352 5,273 5,352 -------- -------- -------- -------- -------- Total gas revenues 321,917 235,235 260,893 244,169 230,502 Transportation 17,892 25,564 29,424 30,423 29,143 Unbilled revenues 5,153 2,603 (9,362) 9,268 322 Other 2,890 2,781 118 66 (905) -------- ------- -------- -------- ------- Total utility operating revenues 347,852 266,183 281,073 283,926 259,062 Cost of gas 138,833 101,733 107,398 110,605 103,306 -------- -------- -------- -------- -------- Net utility operating revenues 209,019 164,450 173,675 173,321 155,756 Non-utility net operating revenues 10,865 8,000 11,664 8,905 1,862 -------- -------- -------- ------- ------- Net operating revenues $219,884 $172,450 $185,339 $182,226 $157,618 ======== ======== ======== ======== ======== Net income $ 37,647 $ 15,775 $ 14,377 $ 30,724 $ 28,420 Preferred and preference stock dividend requirements 3,488 2,560 2,593 2,729 2,814 -------- -------- -------- -------- -------- Earnings applicable to common stock $ 34,159 $ 13,215 $ 11,784 $ 27,995 $ 25,606 ======== ======== ======== ======== ======== Average common shares outstanding (000) 13,074 11,909 11,698 11,522 10,799 Primary earnings per share of common stock $2.61 $1.11* $1.01* $2.43 $2.37 ===== ===== ===== ===== ===== Dividends per share of common stock $1.75 $1.72 $1.69 $1.65 $1.61 ===== ===== ===== ===== ===== Total assets - at end of period ($000) $849,036 $731,834 $731,494 $687,835 $611,386 ======== ======== ======== ======== ======== Capitalization - at end of period ($000): Common stock equity $258,565 $241,538 $216,280 $219,446 $206,424 Preference stock 26,633 26,766 1,869 2,025 2,320 Redeemable preferred stock 17,041 28,218 29,148 30,102 31,539 Long-term debt 272,931 253,766 252,995 215,230 220,503 -------- -------- -------- -------- -------- Total capitalization $575,170 $550,288 $500,292 $466,803 $460,786 ======== ======== ======== ======== ======== Gas sales and transportation deliveries (000 therms): Residential 267,818 206,131 233,079 208,940 201,144 Commercial 209,642 169,406 189,384 173,508 170,143 Industrial - firm 80,588 67,847 65,535 62,252 54,761 - interruptible 66,370 22,399 13,155 13,554 14,816 -------- -------- -------- -------- -------- Total gas sales 624,418 465,783 501,153 458,254 440,864 Transportation 415,367 595,397 591,171 532,703 556,713 Unbilled therms 3,844 4,163 (16,943) 18,774 3,950 --------- --------- --------- ---------- --------- Total volumes delivered 1,043,629 1,065,343 1,075,381 1,009,731 1,001,527 ========= ========= ========= ========= ========= Customers (average for period): Residential 320,186 303,585 288,610 274,069 261,207 Commercial 41,906 40,481 38,954 37,286 35,539 Industrial - firm 388 374 366 350 333 - interruptible 122 75 57 91 142 Transportation 100 153 173 177 88 ------- ------- ------- ------- ------- Total customers 362,702 344,668 328,160 311,973 297,309 ======= ======= ======= ======= ======= Customer statistics: Heat requirements** Actual degree days 4,452 3,662 4,248 4,208 4,310 20-year average degree days 4,313 4,354 4,379 4,391 4,409 Average annual use per customer in therms: Residential 844 685 812 769 777 Commercial 5,029 4,214 4,874 4,670 4,813 Gas purchased cost per therm (cents) 23.11 23.76 21.91 22.67 25.25 * Includes loss of $0.24 per share in 1992 and $1.23 per share in 1991 on Agrico Cogeneration Corporation. (See Part II, Item 8, Note 3 to the Consolidated Financial Statements.) ** A degree day is the measure of the coldness of the weather experienced, based on the extent to which the average of the high and low temperatures for a day falls below 65 degrees Fahrenheit. 19
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Northwest Natural Gas Company's (Northwest Natural) consolidated wholly-owned subsidiaries consist of Oregon Natural Gas Development Corporation (Oregon Natural); NNG Energy Systems, Inc. (Energy Systems); NNG Financial Corporation (Financial Corporation); and Pacific Square Corporation (Pacific Square) (see "Subsidiary Operations" below and Note 2 to the Consolidated Financial Statements). Together, Northwest Natural and these subsidiaries are referred to herein as the "Company." The following is management's assessment of the Company's financial condition including the principal factors that impact results of operations. The discussion refers to the consolidated activities of the Company for the three years ended December 31, 1993. Earnings and Dividends - ----------------------- The Company earned $2.61 per share in 1993, compared to $1.11 per share in 1992 and $1.01 per share in 1991. The improved 1993 performance was due to cooler weather, customer growth and improved subsidiary performance. The Company's earnings for 1992 were depressed by the effects of record-setting warm weather and a loss related to Agrico Cogeneration Corporation (Agrico), a subsidiary of Energy Systems. The Company's earnings for 1991 also were depressed by a charge which related to Agrico. The Company earned $2.72 per share from utility operations in 1993, compared to $1.41 per share and $2.56 per share in 1992 and 1991, respectively. Weather conditions in the Company's service territory in 1993 were 22 percent colder than in 1992 and 5 percent colder than in 1991. The Company incurred a loss equivalent to $0.11 per share from subsidiary operations in 1993, compared to losses equivalent to $0.30 per share and $1.55 per share in 1992 and 1991, respectively (see "Subsidiary Operations" below). 1993 was the 38th consecutive year in which the Company's dividends paid have increased. In 1993, dividends paid on common stock were $1.75, up 1.7 percent from a year ago and 3.6 percent higher than 1991. The indicated annual dividend rate is $1.76 per share. Results of Operations - --------------------- Regulatory Matters ------------------ In April 1993, Northwest Natural filed with the Oregon Public Utility Commission (OPUC) for rate increases averaging 6.2 -20- percent in its residential, commercial, and industrial firm rate schedules. The OPUC approved the Oregon increases effective May 1, 1993. Effective June 1, 1993, the Washington Utilities and Transportation Commission (WUTC) approved rate increases averaging 6.7 percent for the Company's Washington customers. The rate increases offset Northwest Natural's higher costs for interstate pipeline capacity under rates approved by the Federal Energy Regulatory Commission for Northwest Pipeline Corporation (NPC), the primary pipeline supplying the Pacific Northwest. In August 1993, Northwest Natural filed with the OPUC for rate increases averaging 3 percent. The OPUC approved the increases effective October 1, 1993. These rate increases were due to the removal of temporary rate discounts in effect since November 1990 to distribute gas cost savings and pipeline rate refunds resulting from the transition to "open access" transportation by NPC. In November 1993, Northwest Natural filed with the OPUC and the WUTC for rate increases which averaged 3.7 percent and 7.6 percent for Oregon and Washington operations, respectively. The new rates pass through the impact of higher gas costs and remove temporary rate discounts in place since December 1992 for the amortization of prior gas cost savings. Both increases were approved effective December 1, 1993. None of the above rate increases has a material effect on net income. The cumulative effect of the increases is not expected to impair Northwest Natural's competitive position in its key markets. Comparison of Gas Operations ----------------------------- The following table summarizes the composition of utility gas volumes and revenues for the three years ended December 31, 1993: -21-
Thousands 1993 1992 1991 - ----------------------------------------------------------------------------- Gas Sales and Transportation Deliveries (Therms): - ------------------------------------------------- Residential and commercial sales 477,460 375,537 422,463 Unbilled volumes 3,844 4,163 (16,943) --------- --------- --------- Weather-sensitive volumes 481,304 46% 379,700 36% 405,520 38% Industrial firm sales 80,588 8% 67,847 6% 65,535 6% Industrial interruptible sales 66,370 6% 22,399 2% 13,155 1% --------- --------- --------- Total gas sales 628,262 469,946 484,210 Transportation deliveries 415,367 40% 595,397 56% 591,171 55% --------- ---- --------- ---- --------- ---- Total volumes sold and delivered 1,043,629 100% 1,065,343 100% 1,075,381 100% ========= ==== ========= ==== ========= ==== Utility Operating Revenues - -------------------------- Residential and commercial revenues $271,693 $203,448 $232,319 Unbilled revenues 5,153 2,603 (9,362) -------- -------- -------- Weather-sensitive revenues 276,846 80% 206,051 77% 222,957 79% Industrial firm sales revenues 31,340 9% 24,867 9% 25,222 9% Industrial interruptible sales revenues 18,884 5% 6,920 3% 3,352 1% -------- -------- ------- Total gas sales revenues 327,070 237,838 251,531 Transportation revenues 17,892 5% 25,564 10% 29,424 11% Other revenues 2,890 1% 2,781 1% 118 - -------- ---- -------- ---- -------- ---- Total utility operating revenues $347,852 100% $266,183 100% $281,073 100% ======== ==== ======== ==== ======== ==== Cost of gas $138,833 $101,733 $107,398 ======== ======== ======== Total number of customers (end of period) 372,400 353,000 336,400
Residential and Commercial -------------------------- Typically, 75 percent or more of the Company's annual utility operating revenues are derived from gas sales to weather- sensitive residential and commercial customers. Accordingly, dramatic shifts in temperatures from one period to the next can significantly impact volumes of gas sold to these customers. Normal weather conditions are based upon a 20 year average measured by degree days. Weather conditions were three percent cooler than normal in 1993, 16 percent warmer than normal in 1992, and three percent warmer than normal in 1991. 1993 was 22 percent colder than 1992. Cooler weather, the addition of 19,400 customers, and the rate increases approved by the OPUC and WUTC combined to produce a 34 percent increase in revenues from residential and commercial customers in 1993 compared to 1992 on therm deliveries to these customers which were 27 percent higher than in 1992. -22- The Company's residential and commercial customer growth continued at a rapid pace. In the last three years, almost 52,500 of these customers have been added to the system, representing an average growth rate of 5.2 percent. Industrial, Transportation and Other ------------------------------------ Total volumes delivered to industrial firm, industrial interruptible and transportation customers were 123 million therms lower in 1993 than in 1992, while corresponding revenues from such deliveries were $10.8 million higher. The combined net operating revenue (margin) from industrial firm and interruptible sales and transportation customers increased from $42.7 million in 1992 to $44.4 million in 1993. Transportation volumes declined due to a 136 million therm reduction in deliveries to an electric generation plant which was served under a low-margin transportation tariff. This plant is now served primarily by a new natural gas pipeline which is a joint venture between Oregon Natural and Portland General Electric Company. Transportation revenues from this customer were $0.2 million and $2.5 million in 1993 and 1992, respectively. However, due to the effect of a regulatory balancing mechanism in Oregon, under which the Company credits 80 percent of the transportation revenues received for deliveries to this plant to a deferred account for future refunds to other customers, the reduced volume of deliveries in 1993 resulted in a decrease in margin revenues of only $0.5 million. Since 1992, approximately half of Northwest Natural's transportation customers have switched to sales service. These customers, which have the option of purchasing natural gas from Northwest Natural or of purchasing gas directly from suppliers and transporting it on the systems of Northwest Natural and its pipeline suppliers for a fee, select the option which from time to time provides the lowest cost. Management believes that the migration from transportation to sales tariffs by these customers was primarily due to the fact that, in 1993, Northwest Natural's industrial sales tariffs have been lower than the cost to these customers of purchasing and shipping their own gas. The increase in revenue attributable to this migration was offset by an increase in the cost of gas, since transportation rate schedules are designed to provide the same margin as industrial sales tariffs and thus had little effect on the Company's income from operations. Industrial sales and transportation deliveries remained relatively stable during 1992 and 1991, at 686 million therms in 1992 compared to 670 million therms in 1991. Related revenues were $57 million in 1992, essentially unchanged from 1991. Transportation revenues decreased $3.9 million between these two years, although related volumes remained relatively stable, primarily due to rate reductions in certain transportation tariffs. -23- Unbilled revenues are a recognition of revenues for all gas consumption through the end of the month for all customers, regardless of the meter reading date, in order to better match revenues with associated purchased gas costs. Other revenues are primarily related to regulatory balancing accounts (see Note 1 to the Consolidated Financial Statements). The Company and most of its large industrial customers have entered into high-volume interruptible transportation agreements which are designed to provide rates competitive with "bypass" (direct connection to interstate pipelines) by applying fixed charges that vary with each customer's distance from pipeline facilities. These agreements prohibit bypass during their terms. However, management believes that, during the period 1994 to 1998 it might lose from four to six large industrial customers through bypass. In total, these customers represented approximately 10 percent of 1993 volumes, but less than 3 percent of 1993 margin revenues. Given the far greater effect on margin revenues of temperature fluctuations, economic conditions and growth in residential and commercial customers, management believes the impact of bypass will not materially affect the Company's future results of operations or its financial position. Cost of Gas ----------- The cost of gas sold during 1993 was 36 percent greater than in 1992. The primary contributing factors were a 34 percent increase in total volumes sold and a 2 percent increase in the cost of gas per therm which includes purchased gas cost adjustments and net storage gas activity. The cost of gas sold in 1992 was 5 percent lower than in 1991 primarily due to a 3 percent decrease in total volumes sold and a lower average cost of gas per therm. Subsidiary Operations --------------------- Consolidated subsidiary results for the three years ended December 31, 1993, 1992, and 1991, were losses equivalent to $0.11 per share, $0.30 per share and $1.55 per share, respectively. The subsidiaries' results for 1993 reflect a fourth quarter write-down in the value of unproven gas and oil reserves equivalent to $0.11 per share and increased federal income tax expense equivalent to $0.05 per share (see "Depreciation, Depletion and Amortization" and "Income Taxes" below). Results of operations for the individual subsidiaries for 1993, including the adjustments described above, were a net loss of $0.4 million for Energy Systems; a net loss of $1.4 million for Oregon Natural; a net loss of $0.4 million for -24- Financial Corporation; and net income of $0.7 million for Pacific Square. The 1992 and 1991 losses resulted primarily from charges equivalent to $0.24 per share and $1.23 per share, respectively, related to Agrico. Future charges, if any, related to Agrico, are expected to be immaterial (see Note 3 to the Consolidated Financial Statements). The following discussion summarizes operating expenses, interest charges and income taxes. Operating Expenses ------------------ Operations and Maintenance -------------------------- Operations and maintenance expenses were $6.5 million, or 10 percent, higher in 1993 compared to 1992. Utility expenses constituted $6.2 million of this increase including a $3.1 million, or 10 percent, increase in payroll expenses; a $1.3 million increase in employee benefit costs, including an increase of $0.7 million resulting from the adoption of Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions;" a $1.2 million increase in the allowance for uncollectible accounts primarily due to higher residential and commercial gas sales; and a $0.5 million accrual for estimated environmental investigation costs (see Note 12 to the Consolidated Financial Statements). Utility operations and maintenance expenses were $3.4 million, or 6 percent, higher in 1992 than in 1991. Subsidiary operations and maintenance expenses were $4.7 million, or 45 percent, lower. Higher utility operating and maintenance expenses resulted primarily from a $1.5 million, or 5 percent, increase in payroll due to wage and salary increases, a $0.5 million increase in employee benefit costs, and increases in claims for injuries and damages and weatherization costs of $0.5 million and $0.4 million, respectively. Subsidiary expenses were lower in 1992 than in 1991 due to a five-month suspension of Agrico operations during 1992. Taxes Other Than Income ----------------------- Taxes other than income increased $4.7 million, or 23 percent, in 1993 compared to 1992 due to a $2.5 million increase in utility property tax accruals and a $1.8 million increase in franchise taxes resulting from higher utility operating revenues. Approximately $0.9 million of the increased property tax accrual is non-recurring and relates to a dispute with the OPUC over the amount of prior-year savings on property taxes which must be refunded to Oregon customers. The balance of -25- this increase resulted from property taxes on plant additions made primarily to serve new customers. Taxes other than income decreased $0.2 million, or 1 percent, in 1992 compared to 1991. This resulted primarily from a reduction of $0.6 million in utility franchise taxes which occurred due to decreased utility operating revenues. This decrease was offset by a $1.0 million increase in property taxes, again due to new plant additions made primarily to serve new customers. Depreciation, Depletion and Amortization ---------------------------------------- Utility depreciation expense increased $1.9 million, or 7 percent, in 1993 and $1.0 million, or 3.5 percent, in 1992, primarily due to additional utility plant in service. $0.4 million of the increased 1993 expense related to the removal of all of the Company's underground gasoline tanks. Subsidiary depreciation expense increased $4.7 million in 1993 and decreased $1.6 million in 1992. The 1993 increase resulted primarily from charges totalling $3.5 million, from the write-downs of Oregon Natural's unproven gas and oil properties (see Note 2 to the Consolidated Financial Statements). $1.5 million of the 1992 decrease in depreciation expense resulted from the suspension of depreciation on Agrico's assets upon its bankruptcy. Interest Charges ---------------- Utility interest expense for 1993 decreased $1.3 million compared to 1992. The decrease was a result of debt refinancings which reduced interest expense by $0.6 million; $11.5 million lower average outstanding commercial paper balances; and a decrease in average interest rates for utility commercial paper from 3.9 percent in 1992 to 3.3 percent in 1993. Subsidiary interest expense for 1993 decreased $0.3 million compared to 1992 due to a decrease in interest expense under Financial Corporation's commercial paper program. Financial Corporation's average outstanding commercial paper balances decreased $4.4 million from 1992 to 1993. In addition, Financial Corporation's average interest rates for commercial paper decreased from 4.1 percent in 1992 to 3.3 percent in 1993. Utility interest expense for 1992 was $3.0 million higher than for 1991. Although total utility debt outstanding was $4.9 million lower at year end 1992 than at year end 1991, the average monthly debt balances were higher due to the increased use of commercial paper in 1992. Commercial paper borrowing increased as warmer-than-average weather reduced revenues. The effect of the increased borrowings was partially offset by a decrease in average interest rates for utility commercial paper from 6.3 percent in 1991 to 3.9 percent in 1992, -26- and a decrease in average interest expense of utility long-term debt from 9.7 percent in 1991 to 9.3 percent in 1992. The 1992 increase in utility interest expense was offset in part by a $2.8 million decrease in subsidiary interest expense which resulted primarily from the reduction of Financial Corporation's outstanding commercial paper balances and a decrease in Financial Corporation's average interest rates for commercial paper from 6.3 percent in 1991 to 4.1 percent in 1992. Income Taxes ------------ The effective corporate income tax rates for the three years ended December 31, 1993, 1992, and 1991 were 37 percent, 31 percent, and 14 percent, respectively, compared to the Company's statutory tax rates for these periods of 39 percent, 38 percent, and 38 percent, respectively. The effective income tax rate for 1991 was lower than the Company's statutory tax rate primarily as a result of non-recurring adjustments that reduced amounts provided for income taxes in prior years by $4.5 million. The adoption of SFAS No. 109, "Accounting for Income Taxes," effective January 1, 1993, did not materially affect results of operations. However, for 1993, the federal income tax rate for corporations increased from 34 to 35 percent. The cumulative effect of the tax rate increase was recorded in the third quarter of 1993 and resulted in additional income tax expense of $0.6 million, an increase in deferred tax liabilities of $3.0 million, and an increase in regulatory assets of $2.6 million. Financial Condition - ------------------- The weather-sensitive nature of gas usage by Northwest Natural's residential and commercial customers influences the Company's financial condition, including its financing requirements, from one quarter to the next. Liquidity requirements are satisfied primarily through the use of commercial paper, which is supported by commercial bank lines of credit (see "Lines of Credit" and "Commercial Paper" below). Capital Structure ----------------- The Company's long-term goal is to maintain a capital structure comprised of 40 to 45 percent common stock equity, 5 to 10 percent preferred and preference stock and 45 to 50 percent short-term and long-term debt. This target structure is managed by issuing new debt or equity in response to market conditions and the status of accumulated earnings. The Company also uses these sources to meet long-term debt and preferred stock redemption requirements (see Notes 4 and 6 to the Consolidated Financial Statements). -27- Cash Flows ---------- Operating Activities -------------------- Cash provided from operating activities was higher in 1993 and 1991 as compared to 1992, primarily due to higher revenues from gas sales resulting from colder weather. Also, a portion of the increased cash provided from operating activities in 1991 was due to the effects of unusually cold weather in December 1990, which produced substantial increases in the year- end 1990 balances for accounts receivable, unbilled revenue and accounts payable. These balances, which were collected in 1991, provided $26 million of additional funds during 1991. The Company has lease and purchase commitments related to its operating activities which will continue to be financed with cash flows from operations (see Note 12 to the Consolidated Financial Statements). Investing Activities -------------------- Cash requirements for utility construction, primarily related to system improvements and customer growth, totalled $70.4 million, up $9.7 million, or 16 percent, from 1992 and up $12.0 million, or 21 percent, from 1991. The 1993 increase includes $6.3 million in expenditures related to a project initiated in 1993 to replace the existing customer information system. It is estimated that this project will involve a total investment of about $25 million between 1993 and 1996. A large part of the Company's utility capital expenditures is required for utility construction resulting from customer growth and system improvements. While the Company finances most of these requirements from cash from operations, it also uses short-term borrowings and periodically refinances these borrowings through the sale of long-term debt or equity securities. Utility construction expenditures totalling $75 million are projected for 1994. Over the five year period 1994 through 1998, total utility capital expenditures are estimated at between $325 and $350 million. It is anticipated that approximately 50 percent of the funds required for these expenditures during this period will be internally generated, and that the remainder will be funded through short-term borrowings which will be refinanced periodically through the sale of long-term debt and equity securities. Capital expenditures for the Company's operating subsidiaries in 1994 are expected to be limited to funds internally generated by the subsidiaries. In 1993, Oregon Natural sold and exchanged gas producing properties resulting in net cash inflows of $2.3 million. -28- Investments shown on the Consolidated Balance Sheets under "Investments and Other" for 1992 included a $5.5 million restricted cash deposit with a commercial bank which related to Pacific Square. This deposit was reclassified as a current asset in 1993 due to the pending sale of Pacific Square's primary real estate investments to which it relates. The sale of Pacific Square's investments, which is expected to close in 1994, would not be at a loss to the Company. Financing Activities -------------------- During 1993 and 1992, the Company sold $100 million and $45 million, respectively, of its Medium-Term Notes. Of the proceeds from 1993 sales, $82.6 million was used to redeem higher-cost long-term debt, and the remainder was used to meet capital requirements for the Company's ongoing construction program and to reduce short-term borrowing. Of the proceeds from the 1992 sales, $30 million was used to redeem higher-cost long- term debt and $15 million was used to reduce short-term borrowing. As a result of these transactions, the average interest expense on long-term debt declined from 9.7 percent at December 31, 1991 to 8.3 percent at December 31, 1993. Additionally, in order to meet the Company's capital requirements for its ongoing construction program, to refund higher-cost Preferred Stock, and to increase its equity ratios, the Company sold $25 million of Preference Stock and $28.5 million, or 990,000 shares, of Common Stock during the fourth quarter of 1992. In January 1993, approximately $9 million of the proceeds from the sale of Preference Stock was used to redeem all of the outstanding shares of the Company's $8.00 and $2.42 Series of Preferred Stock. Also in 1993, the Company redeemed all of the outstanding shares of its $6.875 Series of Preferred Stock (see Consolidated Statements of Capitalization). The Company reached an agreement with the sole shareholder of the $8.75 Series of Preferred Stock, with a total stated value of $15 million, to issue an equivalent amount of the $7.125 Series of Preferred Stock in exchange for cancellation of the $8.75 Series, effective as of December 1, 1993. Lines of Credit --------------- Northwest Natural has available through September 30, 1994, lines of credit totalling $80 million consisting of a primary fixed amount of $40 million plus an excess amount of up to $40 million available as needed, at Northwest Natural's option, on a monthly basis. Under the terms of these bank lines, Northwest Natural pays a commitment fee but is not required to maintain compensating bank balances. The interest rates on borrowings under these lines of credit are based on current -29- market rates as negotiated. There were no outstanding balances as of December 31, 1993. Financial Corporation has available through September 30, 1994, lines of credit with two commercial banks totalling $20 million, including $10 million committed and $10 million uncommitted. Financial Corporation pays a fee on the committed line but not on the uncommitted line; it is not required to maintain compensating bank balances on either line. The interest rates on borrowings under these lines of credit also are based on current market rates as negotiated. Financial Corporation's lines are supported by the unconditional guaranty of Northwest Natural. There were no outstanding balances as of December 31, 1993 under the Financial Corporation bank lines. Commercial Paper ---------------- The Company's primary source of short-term funds is commercial paper. Both Northwest Natural and Financial Corporation issue commercial paper which is supported by the committed bank lines discussed above. Financial Corporation's commercial paper is unconditionally guarantied by Northwest Natural (see Note 7 to the Consolidated Financial Statements). Agrico Term Loan ---------------- At December 31, 1991, $14.0 million was outstanding under a term loan agreement between Agrico and United States National Bank of Oregon (U.S. Bank). Under a settlement agreement between Energy Systems, U.S. Bank, and Northwest Natural, U.S. Bank assigned the term loan to Energy Systems in exchange for payments by Energy Systems and Northwest Natural totalling $7.2 million. Such payments were made, and the debt was retired during 1992 (see Note 3 to the Consolidated Financial Statements). Ratio of Earnings to Fixed Charges ---------------------------------- For the years ended December 31, 1993, 1992, and 1991, the Company's ratio of earnings to fixed charges, computed by the Securities and Exchange Commission method, was 3.22, 1.81, and 1.59, respectively. Earnings consist of net income to which has been added taxes on income and fixed charges. Fixed charges consist of interest on all indebtedness, amortization of debt expense and discount or premium, and the estimated interest portion of rentals charged to income. -30- Environmental Matters - --------------------- In June 1992, the City of Salem, Oregon, requested the Company's participation in its review of an environmental assessment of riverfront property in Salem that is the proposed site for a park and other public developments. Within the property is a block previously owned by the Company which was the former site of a manufactured gas plant. The Company's corporate predecessor operated the plant for less than four months in 1929 before closing it upon completion of a pipeline providing gas transmission from Portland to Salem. The City has determined that there is environmental contamination on the site, and that a remediation process involving the Company and at least two other prior owners of the block will be required. To date the Company has not obtained sufficient information to determine the extent of its liability for any such remediation. The Company owns property in Linnton, Oregon, that is the former site of a gas manufacturing plant that was closed in 1956. Although limited testing for environmental contamination has been undertaken by other parties on portions of the site, no comprehensive studies have been performed. The Company submitted a work plan for the site to the Oregon Department of Environmental Quality (ODEQ) in 1987, but those efforts were suspended at ODEQ's request while the Company and other parties participated in a joint hydrogeologic study of an area adjacent to the site. In September 1993, pursuant to ODEQ procedures, the Company submitted a notice of intent to participate in the ODEQ's Voluntary Cleanup Program. In January 1994, this site was formally placed in the program. It is anticipated that the site investigation will commence during 1994. In September 1993, the Company recorded an expense of $500,000 for the estimated costs of consultants' fees, ODEQ oversight cost reimbursements, and legal fees in connection with the voluntary investigation at the Linnton site. To date, the Company has not obtained sufficient information to determine whether any remediation will be required at this site or, if so, the extent of its liability for any such remediation. The Company expects that its costs of investigation and any remediation for which it may be liable should be recoverable, in large part, from insurance or through future rates. -31- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA TABLE OF CONTENTS ----------------- Page ---- 1. Management's Responsibility for Financial Statements . . . 33 2. Independent Auditors' Report . . . . . . . . . . . . . . . . . 34 3. Consolidated Financial Statements: Consolidated Statements of Income for the Years Ended December 31, 1993, 1992 and 1991 . . . . . . . . . . . . . . 35 Consolidated Statements of Earnings Invested in the Business for the Years Ended December 31, 1993, 1992 and 1991 . . . . 36 Consolidated Balance Sheets, December 31, 1993 and 1992. . . . 37 Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1992 and 1991 . . . . . . . . . . . . . . 39 Consolidated Statements of Capitalization, December 31, 1993 and 1992. . . . . . . . . . . . . . . . . . . . . . . . 40 Notes to Consolidated Financial Statements . . . . . . . . . . 41 4. Quarterly Financial Information (unaudited). . . . . . . . . . 61 5. Supplemental Schedules for the Years Ended December 31, 1993, 1992 and 1991 Schedule V - Property, Plant and Equipment . . . . . . . . . . 62 Schedule VI - Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment. . . . . . . . 65 Schedule IX - Short-term Borrowings. . . . . . . . . . . . . . 66 Schedule X - Supplementary Income Statement Information. . . . 67 Supplemental Schedules Omitted All other schedules are omitted because of the absence of the conditions under which they are required or because the required information is included elsewhere in the financial statements. -32- MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS ---------------------------------------------------- The financial statements in this report were prepared by management, which is responsible for their objectivity and integrity. The statements have been prepared in conformity with generally accepted accounting principles and, where appropriate, reflect informed estimates based on judgments of management. The responsibility of the Company's independent auditors is to render an independent report on the financial statements. The Company's system of internal accounting controls is designed to provide reasonable assurance that assets are safeguarded and transactions are executed in accordance with management's authorizations, that transactions are recorded to permit the preparation of financial statements in conformity with orders of regulatory authorities and generally accepted accounting principles and that accountability for assets is maintained. The Company's system of internal controls has provided such reasonable assurances during the periods reported herein. The system includes written policies, procedures and guidelines, an organization structure that segregates duties and an established program for monitoring the system by internal auditors. In addition, Northwest Natural Gas Company has prepared and annually distributes to its management employees a Code of Ethics covering its policies for conducting business affairs in a lawful and ethical manner. Ongoing review programs are carried out to ensure compliance with these policies. The Board of Directors, through its Audit Committee, oversees management's financial reporting responsibilities. The committee meets regularly with management, the internal auditors, and representatives of Deloitte & Touche, the Company's independent auditors. Both internal and external auditors have free and independent access to the committee and the Board of Directors. No member of the committee is an employee of the Company. The committee reports the results of its activities to the full Board of Directors. Annually, the Audit Committee recommends the nomination of independent auditors to the Board of Directors for shareholder approval. /s/ Robert L. Ridgley ------------------------------- Robert L. Ridgley President and Chief Executive Officer /s/ Bruce R. DeBolt ------------------------------- Bruce R. DeBolt Senior Vice President, Finance, and Chief Financial Officer -33- DELOITTE & TOUCHE - ----------------------------------------------------------------- 3900 US Bancorp Tower Telephone: (503) 222-1341 111 SW Fifth Avenue Facsimile: (503) 224-2172 Portland, Oregon 97204-3698 INDEPENDENT AUDITORS' REPORT ---------------------------- To the Board of Directors and Shareholders Northwest Natural Gas Company Portland, Oregon We have audited the accompanying consolidated financial statements of Northwest Natural Gas Company and subsidiaries, listed in the accompanying table of contents to financial statements and financial statement schedules at Item 8. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of Northwest Natural Gas Company and subsidiaries at December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years ended December 31, 1993 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. As discussed in Notes 8 and 10 to the consolidated financial statements, the Company changed its method of accounting for income taxes and postretirement benefits in the year ended December 31, 1993. /s/ Deloitte & Touche DELOITTE & TOUCHE February 25, 1994 -34- NORTHWEST NATURAL GAS COMPANY CONSOLIDATED STATEMENTS OF INCOME (Thousands, Except Per Share Amounts) Year Ended December 31 1993 1992 1991 - ------------------------------------------------------------------------ NET OPERATING REVENUES: Revenues: Utility $347,852 $266,183 $281,073 Other 10,865 8,183 14,865 -------- -------- -------- Total operating revenues 358,717 274,366 295,938 -------- ------- -------- Cost of sales: Utility 138,833 101,733 107,398 Other - 183 3,201 -------- -------- ------- Total cost of sales 138,833 101,916 110,599 -------- -------- ------- Net operating revenues 219,884 172,450 185,339 -------- -------- ------- OPERATING EXPENSES: Operations and maintenance 70,723 64,249 65,529 Taxes other than income taxes 25,561 20,865 21,104 Depreciation, depletion and amortization 39,683 33,035 33,623 Loss on cogeneration facility - 4,575 23,200 -------- ------- -------- Total operating expenses 135,967 122,724 143,456 -------- ------- -------- INCOME FROM OPERATIONS 83,917 49,726 41,883 -------- ------- -------- OTHER INCOME (EXPENSE) 933 (267) 1,406 -------- ------- -------- INTEREST CHARGES: Interest on long-term debt 22,578 23,001 21,977 Other interest 1,906 3,223 4,266 Amortization of debt discount and expense 775 511 348 -------- ------- ------- Total interest charges 25,259 26,735 26,591 Allowance for borrowed funds used during construction and capitalized interest (152) (2) - -------- -------- -------- Total interest charges-net 25,107 26,733 26,591 -------- -------- -------- INCOME BEFORE INCOME TAXES 59,743 22,726 16,698 INCOME TAXES 22,096 6,951 2,321 --------- -------- -------- NET INCOME 37,647 15,775 14,377 Preferred and preference stock dividend requirements 3,488 2,560 2,593 -------- ------- ------- EARNINGS APPLICABLE TO COMMON STOCK $ 34,159 $ 13,215 $ 11,784 ======== ======== ======== AVERAGE COMMON SHARES OUTSTANDING 13,074 11,909 11,698 EARNINGS PER SHARE OF COMMON STOCK $2.61 $1.11 $1.01 ===== ===== ===== DIVIDENDS PER SHARE OF COMMON STOCK $1.75 $1.72 $1.69 ===== ===== ===== - ------------------------------------------------------------------------- See Accompanying Notes to Consolidated Financial Statements. -35- NORTHWEST NATURAL GAS COMPANY CONSOLIDATED STATEMENTS OF EARNINGS INVESTED IN THE BUSINESS (Thousands of Dollars) 1993 1992 1991 - ------------------------------------------------------------------------- BALANCE AT BEGINNING OF YEAR $77,690 $86,361 $94,325 Net Income 37,647 15,775 14,377 Cash dividends: Preferred and preference stock (3,401) (2,525) (2,608) Common stock (22,853) (20,406) (19,728) Capital stock expense and other (586) (1,515) (5) ------- ------- ------- BALANCE AT END OF YEAR $88,497 $77,690 $86,361 ======= ======= ======= - ------------------------------------------------------------------------- See Accompanying Notes to Consolidated Financial Statements. -36- NORTHWEST NATURAL GAS COMPANY CONSOLIDATED BALANCE SHEETS (Thousands) December 31 1993 1992 - ------------------------------------------------------------------------ ASSETS: PLANT AND PROPERTY IN SERVICE: Utility plant in service $840,030 $779,274 Less accumulated depreciation 255,282 233,385 -------- -------- Utility plant - net 584,748 545,889 Non-utility property 42,764 44,629 Less accumulated depreciation and depletion 20,646 15,480 -------- -------- Non-utility property - net 22,118 29,149 -------- -------- Total plant and property in service 606,866 575,038 -------- -------- INVESTMENTS AND OTHER: Investments 32,818 32,818 Restricted cash and long-term notes receivable 1,756 7,518 ------- ------- Total investments and other 34,574 40,336 ------- ------- CURRENT ASSETS: Cash and cash equivalents 4,198 7,537 Accounts receivable - customers 45,340 33,956 Allowance for uncollectible accounts (1,368) (948) Accrued unbilled revenue 25,890 20,738 Inventories of gas, materials and supplies 16,838 15,797 Prepayments and other current assets 16,412 8,220 -------- -------- Total current assets 107,310 85,300 -------- -------- OTHER REGULATORY TAX ASSETS 62,130 - DEFERRED DEBITS AND OTHER 38,156 31,160 -------- -------- TOTAL ASSETS $849,036 $731,834 ======== ======== - ----------------------------------------------------------------------- See Accompanying Notes to Consolidated Financial Statements. -37- NORTHWEST NATURAL GAS COMPANY CONSOLIDATED BALANCE SHEETS (Thousands) December 31 1993 1992 - ----------------------------------------------------------------------- CAPITALIZATION AND LIABILITIES: CAPITALIZATION (See Consolidated Statements of Capitalization): Common stock equity $ 41,728 $ 41,080 Premium on common stock 128,340 122,768 Earnings invested in the business 88,497 77,690 -------- -------- Total common stock equity 258,565 241,538 Preference stock 26,633 26,766 Redeemable preferred stock 17,041 28,218 Long-term debt 272,931 253,766 -------- -------- Total capitalization 575,170 550,288 -------- -------- CURRENT LIABILITIES: Notes payable 72,548 47,109 Accounts payable 44,318 40,282 Long-term debt due within one year - 2,138 Taxes accrued 6,757 4,790 Interest accrued 4,438 6,792 Other current and accrued liabilities 10,180 9,387 -------- -------- Total current liabilities 138,241 110,498 -------- -------- DEFERRED INVESTMENT TAX CREDITS 14,567 15,603 DEFERRED INCOME TAXES 104,300 34,929 REGULATORY BALANCING ACCOUNTS AND OTHER 16,758 20,516 COMMITMENTS AND CONTINGENT LIABILITIES (Note 12) - - -------- -------- TOTAL CAPITALIZATION AND LIABILITIES $849,036 $731,834 ======== ======== - ------------------------------------------------------------------------- See Accompanying Notes to Consolidated Financial Statements. -38- NORTHWEST NATURAL GAS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Thousands)
Year Ended December 31 1993 1992 1991 - ------------------------------------------------------------------------------ OPERATING ACTIVITIES: Net income $ 37,647 $ 15,775 $ 14,377 Adjustments to reconcile net income to net cash provided by (used for) operations: Depreciation, depletion and amortization 39,683 33,035 33,623 Loss on cogeneration facility - 4,575 23,200 Deferred income taxes and investment tax credits 6,205 (1,115) (5,784) Equity in losses of unconsolidated affiliates 302 1,506 263 Allowance for funds used during construction and capitalized interest (152) (2) - Regulatory balancing accounts and other - net (10,754) (10,776) 1,672 Changes in operating assets and liabilities: Accounts receivable (10,964) (5,821) 2,964 Accrued unbilled revenue (5,152) (2,603) 9,362 Inventories of gas, materials and supplies (1,041) 1,052 (419) Accounts payable 4,036 (3,507) 5,715 Accrued interest and taxes (387) 881 (1,766) Other current assets and liabilities (1,899) 2,636 2,501 -------- -------- -------- CASH PROVIDED BY OPERATING ACTIVITIES 57,524 35,636 85,708 -------- -------- -------- INVESTING ACTIVITIES: Acquisition and construction of utility plant assets (70,404) (60,709) (58,362) Investment in non-utility plant (955) (11,907) (4,936) Investments and other (40) (8,697) (3,122) --------- -------- -------- CASH USED IN INVESTING ACTIVITIES (71,399) (81,313) (66,420) --------- -------- -------- FINANCING ACTIVITIES: Common stock issued 5,720 33,826 4,642 Preference stock issued - 25,000 - Preferred stock retired (11,177) (930) (954) Long-term debt: Issued 100,000 45,000 40,000 Retired (82,606) (30,191) (11,178) Change in short-term debt 25,439 (41,510) 14,211 Cash dividend payments: Preferred and preference stock (3,401) (2,525) (2,608) Common stock (22,853) (20,406) (19,728) Capital stock expense and other (586) (1,515) (5) -------- -------- --------- CASH PROVIDED BY FINANCING ACTIVITIES 10,536 6,749 24,380 -------- -------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,339) (38,928) 43,668 CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 7,537 46,465 2,797 -------- -------- -------- CASH AND CASH EQUIVALENTS - END OF YEAR $ 4,198 $ 7,537 $ 46,465 ======== ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 26,838 $ 26,502 $ 26,070 Income taxes $ 11,103 $ 10,141 $ 13,238 - ------------------------------------------------------------------------------ See Accompanying Notes to Consolidated Financial Statements.
-39- NORTHWEST NATURAL GAS COMPANY CONSOLIDATED STATEMENTS OF CAPITALIZATION (Thousands, Except Share Amounts)
December 31 1993 1992 - -------------------------------------------------------------------------------- COMMON STOCK EQUITY: Common stock - par value $3-1/6 per share; authorized 30,000,000 shares: outstanding - 1993, 13,177,256 shares; 1992, 12,972,725 shares $ 41,728 $ 41,080 Premium on common stock 128,340 122,768 Earnings invested in business 88,497 77,690 -------- -------- Total common stock equity 258,565 45% 241,538 44% -------- ---- -------- ---- PREFERENCE STOCK, authorized 2,000,000 shares: $2.375 Series, convertible, stated value $25 per share; outstanding - 1993, 65,323 shares; 1992, 70,621 shares 1,633 1,766 $6.95 Series, stated value $100 per share; outstanding - 1993, 250,000 shares; 1992, 250,000 shares 25,000 25,000 -------- -------- Total preference stock 26,633 5% 26,766 5% -------- ---- -------- ---- REDEEMABLE PREFERRED STOCK, authorized 1,500,000 shares*: $4.68 Series, outstanding - 1993, 9,301 shares; 1992, 11,211 shares 930 1,121 $4.75 Series, outstanding - 1993, 11,105 shares; 1992, 11,355 shares 1,111 1,136 $6.875 Series, outstanding - 1993, no shares; 1992, 19,563 shares - 1,956 $7.125 Series, outstanding - 1993, 150,000 shares; 1992, no shares 15,000 - $8.00 Series, outstanding - 1993, no shares; 1992, 29,584 shares - 2,958 $8.75 Series, outstanding - 1993, no shares; 1992, 150,000 shares - 15,000 $2.42 Series, outstanding - 1993, no shares; 1992, 219,882 shares - 5,497 Premium - 550 -------- -------- Total redeemable preferred stock 17,041 3% 28,218 5% --------- --- -------- --- LONG-TERM DEBT: First Mortgage Bonds -------------------- 8-5/8% Series due 1996 - 11,658 9-3/8% Series due 2011 - 46,000 9-3/4% Series due 2015 50,000 50,000 9.80% Series due 2018 - 24,938 9-1/8% Series due 2019 25,000 25,000 Medium-Term Notes ----------------- First Mortgage Bonds: 4.80% Series A due 1996 5,000 - 7.38% Series A due 1997 20,000 20,000 7.69% Series A due 1999 10,000 10,000 5.96% Series B due 2000 5,000 - 5.98% Series B due 2000 5,000 - 8.05% Series A due 2002 10,000 10,000 6.40% Series B due 2003 20,000 - 6.34% Series B due 2005 5,000 - 6.38% Series B due 2005 5,000 - 6.45% Series B due 2005 5,000 - 6.50% Series B due 2008 5,000 - 9.05% Series A due 2021 10,000 10,000 7.25% Series B due 2023 20,000 - 7.50% Series B due 2023 4,000 - 7.52% Series B due 2023 11,000 - Unsecured: 4.90% Series A due 1996 10,000 - 8.69% Series A due 1996 5,000 5,000 7.40% Series A due 1997 5,000 5,000 8.93% Series A due 1998 5,000 5,000 8.95% Series A due 1998 10,000 10,000 8.47% Series A due 2001 10,000 10,000 Convertible Debentures ---------------------- 7-1/4% Series due 2012 12,931 13,308 -------- -------- 272,931 255,904 Less long-term debt due within one-year - 2,138 -------- ------- Total long-term debt 272,931 47% 253,766 46% -------- ---- ------- ---- TOTAL CAPITALIZATION $575,170 100% $550,288 100% ======== ==== ======== ==== - ------------------------------------------------------------------------------ *The $2.42 series has a stated value of $25 per share, all other series have a stated value of $100 per share. See Accompanying Notes to Consolidated Financial Statements.
-40- NORTHWEST NATURAL GAS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: - ------------------------------------------------ Organization and Principles of Consolidation - --------------------------------------------- The consolidated financial statements include: Regulated utility: --Northwest Natural Gas Company (Northwest Natural) Non-regulated wholly-owned businesses: --Oregon Natural Gas Development Corporation (Oregon Natural) --NNG Financial Corporation (Financial Corporation) --Pacific Square Corporation (Pacific Square) --NNG Energy Systems, Inc. (Energy Systems) Together these businesses are referred to herein as the "Company." Intercompany accounts and transactions have been eliminated. Investments in corporate joint ventures and partnerships in which the Company's ownership is 50 percent or less are accounted for by the equity method or the cost method (see Note 11). Certain amounts from prior years have been reclassified to conform with the 1993 presentation. Industry Regulation - ------------------- The Company's principal business is the distribution of natural gas which is regulated by the Oregon Public Utility Commission (OPUC) and the Washington Utilities and Transportation Commission (WUTC). Accounting records and practices conform to the requirements and uniform system of accounts prescribed by these regulatory authorities. Utility Plant - ------------- Utility plant for Northwest Natural is stated at original cost. When a depreciable unit of property is retired, the cost is credited to utility plant and debited to the accumulated provision for depreciation together with the cost of removal, less any salvage. No gain or loss is recognized upon normal retirement. Allowance for Funds Used During Construction (AFUDC), a non- cash item, is calculated using actual commercial paper interest rates. If commercial paper balances are insufficient to finance the amount of work in progress, a -41- NORTHWEST NATURAL GAS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ---------------------------------------------------------------- composite of interest costs of debt, shown as a reduction to interest charges, and a return on equity funds, shown as other income, is used to compute AFUDC. This amount is added to utility plant which is a component of rate base. While cash is not realized currently from AFUDC, it is realized in the ratemaking process over the service life of the related property through increased revenues resulting from higher rate base and higher depreciation expense. The Company's weighted average AFUDC rates for 1993 and 1992 were 3.5 percent and 4.5 percent, respectively. No AFUDC was recorded in 1991. Northwest Natural's provision for depreciation of utility property, which is computed under the straight-line, age-life method in accordance with independent engineering studies and as approved by regulatory authorities, approximated 4.1 percent of average depreciable plant in 1993, 4.0 percent for 1992 and 4.2 percent for 1991. Regulatory Balancing Accounts - ----------------------------- Regulatory balancing accounts are established pursuant to orders of the state utility regulatory commissions, in general rate proceedings or expense deferral proceedings, in order to provide for recovery of revenues or expenses from, or refunds to, Northwest Natural's utility customers. Inventories - ----------- Northwest Natural's inventories of gas in storage and materials and supplies are stated at the lower of average cost or net realizable value. Income Taxes - ------------ The Company adopted Statement of Financial Accounting Standard (SFAS) No. 109, "Accounting for Income Taxes" on January 1, 1993, with no material effect on earnings (see Note 8). The Company provides deferred federal income tax for the timing differences between book depreciation and tax depreciation under the Accelerated Cost Recovery System (ACRS) for 1981 - 1985 property additions and Modified Accelerated Cost Recovery System (MACRS) for post-1985 property additions. Consistent with rate and accounting instructions of regulatory authorities, deferred income taxes are not currently collected for those income tax temporary differences where the prescribed regulatory accounting methods do not provide for current recovery in rates. -42- NORTHWEST NATURAL GAS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ---------------------------------------------------------------- Investment tax credits on utility property additions which reduce income taxes payable are deferred for financial statement purposes and are amortized over the life of the related property. Investment and energy tax credits generated by non-regulated subsidiaries are amortized over a period of two to five years. Unbilled Revenue - ---------------- Northwest Natural accrues for gas deliveries not billed to customers from the meter reading dates to month end. Cash and Cash Equivalents - ------------------------- For purposes of reporting cash flows, cash and cash equivalents include cash on hand and highly liquid temporary investments with original maturity dates of three months or less. Earnings Per Share - ------------------ Earnings per share are computed based on the weighted average number of common shares outstanding each year. Outstanding stock options are common stock equivalents but are excluded from primary earnings per share computations due to immateriality. 2. CONSOLIDATED SUBSIDIARY OPERATIONS: - ---------------------------------------- Oregon Natural Gas Development Corporation - ------------------------------------------ Oregon Natural is a natural gas exploration and production subsidiary of the Company. Approximately $22 million of Oregon Natural's total assets of $39 million are invested in its wholly-owned subsidiary, Canor Energy Ltd., which manages and develops natural gas and oil properties in Canada. Oregon Natural accounts for its exploration costs under the successful-efforts method. Costs to acquire and develop oil and gas properties are capitalized until the volume of proved gas reserves is determined. If there are inadequate gas reserves, the related deferred costs are expensed. Capitalized costs associated with properties under development were $1.4 million at December 31, 1993. -43- NORTHWEST NATURAL GAS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ---------------------------------------------------------------- NNG Financial Corporation - ------------------------- Financial Corporation provides short-term financing for Oregon Natural, Pacific Square and Energy Systems and has several financial investments, including investments as a limited partner in four solar electric generating systems, four windpower electric generating projects, a hydroelectric facility and a low-income housing project (see Note 11). Pacific Square Corporation - -------------------------- Pacific Square is a real estate management subsidiary of the Company. Pacific Square owns a 50 percent interest in a joint venture partnership that owns and operates the building in which the Company leases its general offices. Pacific Square also effectively owns a one-third interest in another partnership that owns and operates an adjacent building. Pacific Square has agreed to sell its interests in these partnerships to its joint venture partner through transactions expected to close in 1994 (see Note 12). The sale of Pacific Square's interests as proposed would not be at a loss to the Company. NNG Energy Systems, Inc. - ------------------------- Energy Systems was formed to design, construct, own and operate cogeneration facilities. Energy Systems' only subsidiary, Agrico Cogeneration Corporation (Agrico), has been in reorganization under Chapter 11 of the U.S. Bankruptcy Code (see Note 3). -44- NORTHWEST NATURAL GAS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ---------------------------------------------------------------- Summarized financial information for the consolidated subsidiaries follows: Consolidated Subsidiaries (Thousands) 1993 1992 1991 - -------------------------------------------------------------------------- Statements of Income for the year ended December 31: Total Operating Revenues $ 10,865 $ 8,183 $ 14,865 Less cost of sales - 183 3,201 -------- -------- -------- Net Operating Revenues 10,865 8,000 11,664 Operating Expenses: Operations and maintenance 5,942 5,598 10,264 Taxes other than income taxes 240 153 489 Depreciation, depletion and amortization 7,986 3,309 4,905 Loss on cogeneration facility* - 4,575 23,200 -------- -------- -------- Total operating expenses 14,168 13,635 38,858 -------- -------- -------- Loss from Operations (3,303) (5,635) (27,194) Other Expense and Interest Charges* (374) (1,670) (3,230) -------- -------- -------- Loss Before Income Taxes (3,677) (7,305) (30,424) Income Tax Benefit 2,188 3,682 12,323 -------- -------- -------- Net Loss $ (1,489) $ (3,623) $(18,101) ======== ======== ======== Balance Sheets as of December 31: Assets: Non-utility property $ 39,435 $ 41,048 $ 47,660 Accumulated depreciation and depletion (18,395) (13,137) (11,044) Investments and other* 34,731 39,781 34,010 Current assets 34,028 16,001 39,955 -------- -------- -------- Total Assets $ 89,799 $ 83,693 $110,581 ======== ======== ======== Capitalization and Liabilities: Capitalization $ 21,843 $ 24,189 $ 29,005 Current liabilities 42,538 33,940 58,458 Other liabilities 25,418 25,564 23,118 -------- -------- -------- Total Capitalization and Liabilities $ 89,799 $ 83,693 $110,581 ======== ======== ======== - -------------------------------------------------------------------------------- *For additional information regarding subsidiary operations, see Notes 3 and 11. 3. AGRICO COGENERATION CORPORATION: - ------------------------------------- Agrico is a wholly-owned subsidiary of Energy Systems. In December 1991, Agrico filed with the United States Bankruptcy Court for the Eastern District of California a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. In view of the uncertainty -45- NORTHWEST NATURAL GAS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ---------------------------------------------------------------- regarding the financial viability of Agrico, the Company recorded a write-down of $23.2 million (pre-tax) in 1991, resulting in an after-tax charge equivalent to $1.23 per share. In 1992, Energy Systems and Northwest Natural entered a settlement agreement with United States National Bank of Oregon (U.S. Bank) with respect to U.S. Bank's $14 million secured loan to Agrico. Agrico also entered a conditional settlement agreement with Pacific Gas & Electric Company (PG&E), the purchaser of power produced by Agrico, with respect to PG&E's claimed overpayments to Agrico for power purchased in 1990 and 1991. Agrico also entered a conditional agreement with Wellhead Electric Company (Wellhead), the contract operator of the Agrico facility, for the sale of Agrico's assets to Wellhead. Based upon the estimated costs to the Company under the settlements with U. S. Bank and PG&E, the estimated net proceeds to be received from the sale of Agrico's assets to Wellhead, and other elements of a Chapter 11 reorganization plan, the Company recorded a charge of $4.6 million in 1992, resulting in an after-tax charge of $2.8 million, or 24 cents per share. The California Public Utilities Commission approved Agrico's settlement with PG&E in December 1993, and the U. S. Bankruptcy Court confirmed Agrico's reorganization plan in January 1994. The sale of Agrico's assets to Wellhead closed in February 1994. No material impact to 1994 earnings is expected related to these events. 4. CAPITAL STOCK: - ------------------- Common Stock - ------------ At December 31, 1993, Northwest Natural had reserved 98,720 shares of common stock for issuance under the Employee Stock Purchase Plan, 623,203 shares under its Dividend Reinvestment and Stock Purchase Plan, 153,985 shares under its 1985 Stock Option Plan (see Note 5), 107,866 shares for future conversions of its convertible preference stock and 472,427 shares for future conversions of its 7-1/4 percent Convertible Debentures. Preference Stock - ---------------- The $2.375 Series of Convertible Preference Stock is convertible into shares of common stock at a conversion rate of 1.6502 shares of common stock for each share of preference stock. Subject to certain restrictions, it is -46- NORTHWEST NATURAL GAS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ---------------------------------------------------------------- callable at stipulated prices, plus accrued dividends. The $6.95 Series of Preference Stock is not redeemable prior to December 31, 2002, but is subject to mandatory redemption on that date. Redeemable Preferred Stock - -------------------------- The mandatory preferred stock redemption requirements aggregate $1,042,000 in 1994 and $1,110,000 in 1995, 1996, 1997 and 1998. These requirements are noncumulative. At any time the Company is in default on any of its obligations to make the prescribed sinking fund payments, it may not pay cash dividends on common stock or preference stock. Upon involuntary liquidation, all series of redeemable preferred stock are entitled to their stated value. Generally, the redeemable preferred stock is callable at stipulated prices, plus accrued dividends, subject to certain restrictions. At December 31, 1993, redemption prices were $100 per share for the $4.68 and $4.75 Series. Shares of the $7.125 Series are redeemable on or after May 1, 1998 at a price of $104.75 per share decreasing each year thereafter to $100 per share on or after May 1, 2008. The following table shows the changes in the number of shares of the Company's capital stock and the premium on common stock for the years 1993, 1992 and 1991: -47- NORTHWEST NATURAL GAS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ----------------------------------------------------------------
------------Shares------------ Premium Redeemable on Thousands, Common Preference Preferred Common Except Share Data Stock Stock Stock Stock - ------------------------------------------------------------------------------- Balance, December 31, 1990 11,603,507 80,986 489,522 $ 88,377 Sales to employees 8,899 -- -- 188 Sales to stockholders 141,454 -- -- 3,517 Exercise of stock options - net 7,668 -- -- 24 Conversion of preference stock to common 10,253 (6,215) -- 123 Conversion of convertible debentures to common 13,396 -- -- 357 Sinking fund purchases -- -- (24,068) -- Other -- -- -- 13 ---------- -------- -------- -------- Balance, December 31, 1991 11,785,177 74,771 465,454 92,599 Sales to the public 990,000 250,000 -- 25,327 Sales to employees 9,350 -- -- 222 Sales to stockholders 157,046 -- -- 4,228 Exercise of stock options - net 19,918 -- -- 183 Conversion of preference stock to common 6,846 (4,150) -- 82 Conversion of convertible debentures to common 4,388 -- -- 117 Sinking fund purchases -- -- (23,859) -- Other -- -- -- 10 ---------- ------- ------- -------- Balance, December 31, 1992 12,972,725 320,621 441,595 122,768 Sales to employees 9,542 -- -- 249 Sales to stockholders 154,850 -- 150,000 4,724 Exercise of stock options - net 19,110 -- -- 172 Conversion of preference stock to common 8,740 (5,298) -- 105 Conversion of convertible debentures to common 12,289 -- -- 328 Redemptions -- -- (416,873) -- Sinking fund purchases -- -- (4,316) -- Other -- -- -- (6) ---------- ------- ------- -------- Balance, December 31, 1993 13,177,256 315,323 170,406 $128,340 ========== ======= ======= ========
- -------------------------------------------------------------------------- 5. STOCK OPTION AND PURCHASE PLANS: - ------------------------------------- Northwest Natural's 1985 Stock Option Plan (Plan) authorizes an aggregate of 300,000 shares of common stock for issuance as incentive or non-statutory stock options. These options may be granted only to officers and key employees of the Company designated by its Board of Directors. -48- NORTHWEST NATURAL GAS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ---------------------------------------------------------------- All options granted are at an option price not less than market value at the date of grant and may be exercised for a period not exceeding 10 years from the date of grant. Option holders may exchange shares owned by them for at least one year, at the current market price, to purchase shares at the option price. During 1985 and 1990, 150,000 and 86,500 options were granted under the Plan at option prices of $17.625 and $24.875, respectively. Information regarding the Plan is summarized below: Options ---------------------------- Year Ended December 31 1993 1992 1991 ----------------------------------------------------------- Outstanding, beginning of year 101,326 138,408 158,029 $17.625 Options: Exchanged by holders (6,184) (7,673) (6,659) Exercised (9,334) (13,440) (5,362) $24.875 Options: Exchanged by holders (4,729) (6,017) (5,294) Exercised (9,776) (6,652) (2,306) Expired - (3,300) - ------- ------- ------- Outstanding, end of year 71,303 101,326 138,408 ======= ======= ======= Available for grant, end of year 82,682 82,682 79,382 ======= ======= ======= -------------------------------------------------------------- Northwest Natural also has an employee stock purchase plan whereby employees may purchase common stock at 92 percent of average bid and ask market price on the subscription date. The subscription date is set annually, and each employee may purchase up to 600 shares payable through payroll deduction over a six to twelve month period. 6. LONG TERM DEBT: - -------------------- The issuance of first mortgage bonds under the Mortgage and Deed of Trust is limited by property, earnings and other provisions of the mortgage. The Company's Mortgage and Deed of Trust constitutes a first mortgage lien on substantially all of its utility property. -49- NORTHWEST NATURAL GAS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ---------------------------------------------------------------- The 7-1/4 percent Series of Convertible Debentures may be converted at any time for 33-1/2 shares of common stock for each $1,000 face value ($29.85 per share). The sinking fund requirements and maturities for the five years ending December 31, 1998, on the long-term debt outstanding at December 31, 1993, amount to: none in 1994; $1.0 million in 1995; $21.0 million in 1996; $26.0 million in 1997; and $16.0 million in 1998. 7. NOTES PAYABLE AND LINES OF CREDIT: - --------------------------------------- Northwest Natural has available through September 30, 1994, lines of credit totalling $80 million consisting of a primary fixed amount of $40 million plus an excess amount of up to $40 million available as needed, at Northwest Natural's option, on a monthly basis. Under the terms of these bank lines, Northwest Natural pays a commitment fee but is not required to maintain compensating bank balances. The interest rates on borrowings under these lines of credit are based on current market rates as negotiated. There were no outstanding balances as of December 31, 1993. Financial Corporation has available through September 30, 1994, lines of credit with two commercial banks totalling $20 million, including $10 million committed and $10 million uncommitted. Financial Corporation pays a fee on the committed line but not on the uncommitted line; it is not required to maintain compensating bank balances on either line. The interest rates on borrowings under these lines of credit also are based on current market rates as negotiated. Financial Corporation's lines are supported by the unconditional guaranty of Northwest Natural. There were no outstanding balances as of December 31, 1993 under the Financial Corporation bank lines. Northwest Natural and Financial Corporation issue domestic commercial paper under agency agreements with a commercial bank. The amounts and average interest rates of commercial paper outstanding were as follows at December 31: 1993 1992 ---------------- ---------------- Average Average Millions Amount Rate Amount Rate ----------------------------------------------------------- Northwest Natural $53.4 3.4% $34.4 3.8% Financial Corporation 19.1 3.4% 11.9 3.7% ----- ----- Total $72.5 $46.3 ===== ===== ------------------------------------------------------------ -50- NORTHWEST NATURAL GAS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ---------------------------------------------------------------- Commercial paper issued by Northwest Natural and Financial Corporation is supported by committed bank lines. Additionally, Financial Corporation's commercial paper is supported by the unconditional guaranty of Northwest Natural. 8. INCOME TAXES: - ----------------- The Company adopted SFAS No. 109, "Accounting for Income Taxes," effective January 1, 1993. The adoption of the new standard results in an increase in net deferred tax liabilities of $62 million to reflect deferred taxes on differences previously flowed-through and to adjust existing deferred taxes to the level required at the current statutory rate. An offsetting regulatory asset of $62 million was also recorded. The regulatory asset is primarily based upon differences between the book and tax basis of utility plant in service and the accumulated provision for depreciation. It is expected that the regulatory asset will be recovered in future rates. The implementation of SFAS No. 109 did not significantly impact results of operations. A reconciliation between income taxes calculated at the statutory federal tax rate and the tax provision reflected in the financial statements is as follows: -51-
Thousands 1993 1992 1991 - ------------------------------------------------------------------- Computed income taxes based on statutory federal income tax rate (1993-35%; 1992 and 1991-34%) $20,910 $ 7,727 $ 5,677 Increase (reduction) in taxes resulting from: Differences between book and tax depreciation 1,561 1,233 1,566 Current state income tax, net of federal tax benefit 2,525 711 727 Federal income tax credits (348) - - Restoration of investment tax credit (1,064) (1,124) (2,026) Elimination of amounts previously provided (1,059) (1,229) (4,462) Real and personal property taxes 113 - 548 Removal costs (320) (335) (578) Unconsolidated foreign subsidiary income (496) - - Other - net 274 (32) 869 ------- ------- ------- Total provision for income taxes $22,096 $ 6,951 $ 2,321 ======= ======= ======= - ---------------------------------------------------------------------
The provision for income taxes consists of the following:
Thousands 1993 1992 1991 - --------------------------------------------------------------------- Income taxes currently payable: Federal $ 13,368 $ 7,577 $ 6,485 State 2,166 375 1,795 Foreign 30 13 (139) ------- ------- ------- Total 15,564 7,965 8,141 ------- ------- ------- Deferred taxes - net: Federal 5,896 (676) (1,805) State 1,718 616 (1,989) ------- ------ ------- Total 7,614 (60) (3,794) ------- ------ ------- Investment and energy tax credits restored: From utility operations (800) (800) (800) From subsidiary operations (282) (154) (1,226) ------- ------ ------- Total (1,082) (954) (2,026) ------- ------ ------- Total provision for income taxes $22,096 $6,951 $ 2,321 ======= ====== ======= Percentage of pretax income 36.99% 30.59% 13.90% ======= ====== ======= - --------------------------------------------------------------------
-52- NORTHWEST NATURAL GAS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ---------------------------------------------------------------- The annual provision for deferred income taxes is comprised of the following:
Thousands 1993 1992 1991 - ---------------------------------------------------------------------------- Cost of gas delivered and unbilled $ - $ - $ (1,447) ACRS and MACRS deductions in excess of related book depreciation 5,925 8,661 10,199 Revenues and costs deferred for tax purposes 1,528 2,600 (1,718) Agrico book loss - (1,374) (8,839) Real and personal property taxes 2,329 (2,328) - Alternative minimum tax credits - (6,866) - Elimination of amounts previously provided (2,216) (1,025) (1,740) Other 48 272 (249) ------- -------- ------- Total $ 7,614 $ (60) $(3,794) ======= ======== ======= - ------------------------------------------------------------------------------
9. EMPLOYEE RETIREMENT PLANS: - ------------------------------- The Company has two non-contributory defined benefit retirement plans covering all regular, full-time employees with more than one year of service. The benefits under the plans are based upon years of service and the employee's average compensation during the final years of service. The Company's funding policy is to make the annual contribution required by applicable regulations and recommended by its actuary. Plan assets consist primarily of marketable securities, corporate obligations, U.S. government obligations, real estate and cash equivalents. -53- NORTHWEST NATURAL GAS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ---------------------------------------------------------------- The following table sets forth the amounts recognized in the Company's financial statements and the combined funded status of the retirement plans:
Pension Costs for the Year (Thousands): 1993 1992 1991 ----------------------------------------------------------------- Service cost $ 2,587 $ 2,528 $ 2,098 Interest cost 6,024 5,688 5,109 Return on assets (17,762) (8,797) (16,336) Net amortization and deferral 9,526 1,215 9,045 -------- -------- -------- Annual pension cost (benefit) $ 375 $ 634 $ (84) ======== ======== ======== ----------------------------------------------------------------- Vested benefit obligation $ 69,859 $ 62,152 $ 55,304 Total accumulated benefit obligation $ 70,618 $ 62,971 $ 55,802 ----------------------------------------------------------------- Funded status as of December 31: Plan assets at fair value $108,579 $ 94,595 $ 88,472 Projected benefit obligation for service rendered to date 86,814 77,278 69,074 -------- -------- -------- Funded status 21,765 17,317 19,398 Unrecognized net gain (21,417) (15,895) (16,601) Unrecognized net asset at transition (2,310) (2,706) (3,102) Unrecognized prior service costs 4,413 3,531 1,690 -------- -------- -------- Prepaid pension cost $ 2,451 $ 2,247 $ 1,385 ======== ======== ======== Total cash contribution $ 579 $ 1,496 $ 810 ======== ======== ======== ------------------------------------------------------------------ Discount rate 7.50% 8.00% 8.00% ===== ===== ===== Expected long-term rate of return on plan assets 9.00% 9.00% 9.00% ===== ===== ===== Rate for compensation increases 5.13% 5.13% 5.13% ===== ===== ===== -------------------------------------------------------------------
Effective January 1, 1994, the Company changed the assumed discount rate used in determining the funded status of the plans from 8.00 percent to 7.50 percent. The new discount rate was used in determining the funded status of the plans at year-end 1993 and will be used to determine annual pension cost in 1994. The Company has a qualified "Retirement K Savings Plan" under Internal Revenue Code Section 401(k) and a non- qualified "Executive Deferred Compensation Plan", for eligible employees. These plans are designed to enhance the existing retirement program of employees and to assist them -54- NORTHWEST NATURAL GAS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ---------------------------------------------------------------- in strengthening their financial security by providing an incentive to save and invest regularly. Company contributions to these plans in 1993, 1992 and 1991 were $450,000, $315,000 and $290,000, respectively. The Company has a non-qualified supplemental retirement plan for eligible executive officers which it is funding with trust-owned life insurance. The amount of coverage is designed to provide sufficient returns to recover all costs of the plan if assumptions made as to mortality experience, policy earnings, and other factors are realized. Expenses related to the plan were $840,000, $883,000 and $894,000 in 1993, 1992 and 1991, respectively. 10. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS: - ------------------------------------------------------------ The Company currently provides continued health care and life insurance coverage after retirement for exempt employees. These benefits and similar benefits for active employees are provided by insurance companies and related premiums are based on the amount of benefits paid during the year. Effective January 1, 1993, the Company adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions." SFAS No. 106 requires the Company to accrue the estimated cost of retiree benefit payments during the years of employees' active service. The Company previously expensed the cost of these benefits, which are principally health care, as premiums were paid. SFAS No. 106 allows recognition of the cumulative effect of the liability in the year of adoption or amortization of the obligation over a period of up to 20 years. The Company elected to recognize this obligation of approximately $11,300,000 over a period of 20 years. The Company's cash flows are not affected by implementation of this Statement, but implementation decreased income from operations for 1993 by $715,000. The incremental costs of approximately $1,110,000 per year (pre-tax) relating to SFAS No. 106 are not currently included in the Company's rates. The staff of the OPUC has recommended that the portion of these costs allocated to Oregon (approximately 95 percent) be authorized for recovery in rates only pursuant to a general rate case filing, and has recommended against the use of deferred accounting treatment for their recovery. The Company is charging the Oregon portion of these costs to expense. The WUTC has approved deferred accounting treatment for the portion of these costs allocated to Washington (approximately 5 percent), pending final approval for recovery in a general rate case filing. The Company will continually review its -55- NORTHWEST NATURAL GAS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ---------------------------------------------------------------- need for general rate cases covering these and other expenses but has no present plans to file a general rate case in Oregon or Washington. In 1993, 1992 and 1991, the Company recognized $1,751,000, $671,000 and $588,000, respectively, as the cost of postretirement health care and life insurance benefits. The following table sets forth the health care plan's status at December 31, 1993: Accumulated postretirement benefit obligation (Thousands): ---------------------------------------------------------- Retirees $ 6,675 Fully eligible active plan participants 260 Other active plan participants 4,815 -------- Total accumulated postretirement benefit obligation 11,750 Fair value of plan assets - -------- Accumulated postretirement benefit obligation in excess of plan assets 11,750 Unrecognized transition obligation (10,716) Unrecognized gain 76 -------- Accrued postretirement benefit cost $ 1,110 ======== Net postretirement benefit cost (Thousands): -------------------------------------------- Service cost - benefits earned during the period $ 255 Return on plan assets (if any) - Interest cost on accumulated postretirement benefit obligation 932 Amortization of transition obligation 564 -------- Net postretirement benefit cost $ 1,751 ======== ------------------------------------------------------------ The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation for pre- Medicare eligibility is 12 percent for 1994; 10 percent for 1995; then decreasing over the next 10 years to 5 percent. The rate for HMO plan and post-Medicare eligibility is 9 percent for 1994-5, decreasing over the next 10 years to 5 percent. A one-percentage-point change in the assumed health care cost trend rate for each year would adjust the accumulated postretirement benefit obligation as of December 31, 1993 and net postretirement health care cost by approximately 16 percent. The assumed discount rate used in determining the accumulated postretirement benefit obligation was 7.5 percent. -56- NORTHWEST NATURAL GAS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ---------------------------------------------------------------- 11. INVESTMENTS: - ----------------- The following table summarizes the Company's year-end investments in affiliated entities accounted for under the equity and cost methods, and its investment in a leveraged lease. Thousands 1993 1992 ------------------------------------------------------------ Electric generation (solar and wind-power) $21,043 $22,757 Aircraft leveraged lease 9,079 8,264 Automated meter-reading technology 1,301 1,352 Gas pipeline and other 1,395 445 ------- ------- Total investments and other $32,818 $32,818 ======= ======= ----------------------------------------------------------- Financial Corporation has invested in four solar electric generation plants located near Barstow, California. Power generated by these stations is sold to Southern California Edison Company. Financial Corporation's ownership interests in these projects range from 4.0 percent to 5.3 percent. Financial Corporation also has invested in four U. S. Windpower Partners electric generating projects, with facilities located near Livermore and Palm Springs, California. The wind-generated power is sold to PG&E and Southern California Edison Company under long-term contracts. Financial Corporation's ownership interests in these projects range from 8.5 percent to 41 percent. In 1987, Oregon Natural purchased a Boeing 737-300 aircraft which was leased to Continental Airlines for 20 years under a leveraged lease agreement. In 1990, the Company invested in a developer of automated meter-reading devices, with facilities located in Spokane, Washington. The Company's ownership interest is 10 percent. -57- NORTHWEST NATURAL GAS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ---------------------------------------------------------------- 12. COMMITMENTS AND CONTINGENT LIABILITIES: - -------------------------------------------- Lease Commitments ----------------- Future lease commitments are: $5.2 million in 1994; $4.9 million in 1995; $4.2 million in 1996; $4.0 million in 1997; and $1.8 million in 1998. Thereafter, total commitments amount to $12.0 million. These commitments principally relate to the lease of the Company's office headquarters and computer systems. The pending sale of the Company's investment in the partnership which owns and operates its office headquarters building (see Note 2) will not affect the Company's lease which extends through 2006, with options to extend beyond that date. Rent paid by the Company to the partnership was $2.8 million in 1993, and $2.2 million in 1992 and 1991. Total rental expense for 1993, 1992 and 1991 was $5.2 million, $4.4 million and $4.5 million, respectively. Purchase Commitments -------------------- The Company has signed agreements providing for the availability of firm pipeline capacity. Under these agreements, the Company must make fixed monthly payments for contracted capacity. The pricing component of the monthly payment is established, and subject to change, by U.S. or Canadian regulatory bodies. The aggregate amount of such required payments was as follows at December 31, 1993: Commitments (Thousands) ------------------------------------------------------------ 1994 $ 58,961 1995 62,123 1996 77,232 1997 74,237 1998 74,012 Thereafter 874,867 ---------- Total 1,221,432 Less: Amount representing interest 504,957 ---------- Total at present value $ 716,475 ========== ------------------------------------------------------------ The Company's total payments of fixed charges under these agreements in 1993, 1992 and 1991 were $46.7 million, $34.7 million and $32.5 million, respectively. In addition, the -58- NORTHWEST NATURAL GAS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ---------------------------------------------------------------- Company is required to pay per-unit charges based on the actual quantities shipped under the agreements. In certain of the Company's take-or-pay purchase commitments, annual deficiencies may be offset by prepayments subject to recovery over a longer term if future purchases exceed the minimum annual requirements. The Company has contracted with an external vendor for the development of a customer information system for a fixed contract price of $12 million to be incurred over four years as follows: $3.6 million in 1993; $4.7 million in 1994; $0.7 million in 1995; and $3.0 million in 1996. Environmental Matters --------------------- In June 1992, the City of Salem, Oregon, requested the Company's participation in its review of an environmental assessment of riverfront property in Salem that is the proposed site for a park and other public developments. Within the property is a block previously owned by the Company which was the former site of a manufactured gas plant. The Company's corporate predecessor operated the plant for less than four months in 1929 before closing it upon completion of a pipeline providing gas transmission from Portland to Salem. The City has determined that there is environmental contamination on the site, and that a remediation process involving the Company and at least two other prior owners of the block will be required. To date the Company has not obtained sufficient information to determine the extent of its liability for any such remediation. The Company owns property in Linnton, Oregon, that is the former site of a gas manufacturing plant that was closed in 1956. Although limited testing for environmental contamination has been undertaken by other parties on portions of the site, no comprehensive studies have been performed. The Company submitted a work plan for the site to the Oregon Department of Environmental Quality (ODEQ) in 1987, but those efforts were suspended at ODEQ's request while the Company and other parties participated in a joint hydrogeologic study of an area adjacent to the site. In September 1993, pursuant to ODEQ procedures, the Company submitted a notice of intent to participate in the ODEQ's Voluntary Cleanup Program. In January 1994, this site was formally placed in the program. It is anticipated that the site investigation will commence during 1994. In September 1993, the Company recorded an expense of $500,000 for the estimated costs of consultants' fees, ODEQ oversight cost reimbursements, and legal fees in connection with the voluntary investigation at the Linnton site. To date, the Company has not obtained sufficient information to -59- NORTHWEST NATURAL GAS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ---------------------------------------------------------------- determine whether any remediation will be required at this site or, if so, the extent of its liability for any such remediation. The Company expects that its costs of investigation and any remediation for which it may be liable should be recoverable, in large part, from insurance or through future rates. Litigation ---------- The Company is party to certain legal actions in which claimants seek material amounts. Although it is impossible to predict the outcome with certainty, based upon the opinions of legal counsel, management does not expect disposition of these matters to have a materially adverse effect on the Company's financial position or results of operations. 13. FAIR VALUE OF FINANCIAL INSTRUMENTS: - ----------------------------------------- The estimated fair values of the Company's financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. The following is a list of financial instruments whose carrying values are sensitive to market conditions: December 31, 1993 December 31, 1992 -------------------- ------------------- Carrying Estimated Carrying Estimated Thousands of Dollars Amount Fair Value Amount Fair Value - ---------------------------------------------------------------- Preference stock $ 26,633 $ 26,698 $ 26,766 $ 28,354 Redeemable preferred stock 17,041 16,573 28,218 26,947 Long-term debt 272,931 301,358 255,904 283,280 - ---------------------------------------------------------------- -60- NORTHWEST NATURAL GAS COMPANY QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
------------Quarter Ended----------- Dollars (Thousands Except Per Share) Mar. 31, June 30, Sept. 30, Dec. 31, Total - ----------------------------------------------------------------------------- 1992 Operating revenues 90,326 47,791 38,811 97,438 274,366 Net operating revenues 56,291 30,827 26,859 58,473 172,450 Net income (loss) 13,130 (3,232) (7,785) 13,662 15,775 Earnings (loss) per share 1.06 (0.33) (0.71) 1.08 1.11* 1993 Operating revenues 128,714 61,789 47,451 120,763 358,717 Net operating revenues 82,116 40,141 30,805 66,822 219,884 Net income (loss) 24,653 2,767 (4,423) 14,650 37,647 Earnings (loss) per share 1.82 0.15 (0.40) 1.05 2.61* - ------------------------------------------------------------------------------- *Quarterly earnings per share are based upon the average number of common shares outstanding during each quarter. Because the average number of shares outstanding has increased in each quarter shown, the sum of quarterly earnings does not equal earnings per share for the year. Variations in earnings between quarterly periods are due primarily to the seasonal nature of the Company's business.
-61- NORTHWEST NATURAL GAS COMPANY SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT YEAR ENDED DECEMBER 31, 1993 (Thousands of Dollars)
Balance at Balance Beginning Additions Retire- Other at End of Classification of Period at Cost ments Changes* Period - ------------------------------------------------------------------------------------- Utility - gas: Intangibles $ 39 $ 718 $ - $ 9,085 $ 9,842 Land and land rights 6,876 68 - - 6,944 Structures and improvement 14,863 2,743 - - 17,606 Generating plant equipment 388 - - - 388 Distribution 382,731 29,165 2,139 - 409,757 Customers' installations 268,325 26,311 5,063 - 289,573 General equipment 45,673 5,124 2,742 (9,080) 38,975 Holders 51,962 440 - (5) 52,397 Petroleum gas equipment (butane plant) 3 - - - 3 Natural gas equipment (gate stations and mixing equipment) 1,254 1 - - 1,255 Property held for future use 803 - - - 803 Construction work in progress 1,330 6,130 - - 7,460 -------- ------- ------ ------- -------- Utility plant - gas 774,247 70,700 9,944 - 835,003 Gas stored underground - long-term 5,027 - - - 5,027 -------- ------- ------ ------- -------- Total utility property, plant and equipment (including intangibles) $779,274 $70,700 $9,944 $ 0 $840,030 ======== ======= ====== ======= ======== Non-utility: Land $ 125 $ - $ - $ - $ 125 Structures 1,002 - - - 1,002 Storage tanks 2,202 - - - 2,202 GELP conversion burners 252 - 252 - - Subsidiaries' property 41,048 955 134 (2,434) 39,435 -------- ------- ------ ------- -------- Total non-utility property, plant and equipment $ 44,629 $ 955 $ 386 $(2,434) $ 42,764 ======== ======= ====== ======= ======== ___________________ *Includes transfers and reclassifications. -62-
NORTHWEST NATURAL GAS COMPANY SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT YEAR ENDED DECEMBER 31, 1992 (Thousands of Dollars)
Balance at Balance Beginning Additions Retire- Other at End of Classification of Period at Cost ments Changes* Period - ------------------------------------------------------------------------------------------------- Utility - gas: Intangibles $ 39 $ - $ - $ - $ 39 Land and land rights 6,360 516 - - 6,876 Structures and improvement 13,527 1,336 - - 14,863 Generating plant equipment 388 - - - 388 Distribution 355,706 27,778 755 2 382,731 Customers' installations 245,917 24,123 1,713 (2) 268,325 General equipment 42,376 4,325 1,028 - 45,673 Holders 51,480 482 - - 51,962 Petroleum gas equipment (butane plant) 3 - - - 3 Natural gas equipment (gate stations and mixing equipment) 1,246 2 (6) - 1,254 Property held for future use - 803 - - 803 Construction work in progress - 1,330 - - 1,330 -------- ------- ------ -------- -------- Utility plant - gas 717,042 60,695 3,490 - 774,247 Gas stored underground - long-term 5,027 - - - 5,027 -------- ------- ------ -------- -------- Total utility property, plant and equipment (including intangibles) $722,069 $60,695 $3,490 $ - $779,274 ======== ======= ====== ======== ======== Non-utility: Land $ 125 $ - $ - $ - $ 125 Structures 1,002 - - - 1,002 Storage tanks 2,202 - - - 2,202 GELP conversion burners 276 - 24 - 252 Subsidiaries' property 47,660 8,743 3,502 (11,853) 41,048 -------- ------- ------ -------- -------- Total non-utility property, plant and equipment $ 51,265 $ 8,743 $3,526 $(11,853) $ 44,629 ======== ======= ====== ======== ======== _____________________ *Includes write-down of cogeneration plant, transfers and reclassifications. -63-
NORTHWEST NATURAL GAS COMPANY SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT YEAR ENDED DECEMBER 31, 1991 (Thousands of Dollars)
Balance at Balance Beginning Additions Retire- Other at End of Classification of Period at Cost ments Changes* Period - ------------------------------------------------------------------------------------------------- Utility - gas: Intangibles $ 39 $ - $ - $ - $ 39 Land and land rights 6,007 353 - - 6,360 Structures and improvement 12,605 965 - (43) 13,527 Generating plant equipment 388 - - - 388 Distribution 333,860 23,354 1,515 7 355,706 Customers' installations 223,624 23,583 1,281 (9) 245,917 General equipment 34,590 9,267 1,478 (3) 42,376 Holders 48,909 2,559 35 47 51,480 Petroleum gas equipment (butane plant) 9 - 6 - 3 Natural gas equipment (gate stations and mixing equipment) 1,237 35 27 1 1,246 Construction work in progress 2,369 (2,369) - - -- -------- ------- ------ -------- -------- Utility plant - gas 663,637 57,747 4,342 - 717,042 Gas stored underground - long-term 5,027 - - - 5,027 -------- ------- ------ -------- -------- Total utility property, plant and equipment (including intangibles) $668,664 $57,747 $4,342 $ - $722,069 ======== ======= ====== ======== ======== Non-utility: Land $ 125 $ - $ - $ - $ 125 Structures 1,002 - - - 1,002 Storage tanks 2,202 - - - 2,202 GELP conversion burners 307 - 31 - 276 Subsidiaries' property 66,680 5,181 23 (24,178) 47,660 -------- ------- ------ -------- -------- Total non-utility property, plant and equipment $ 70,316 $ 5,181 $ 54 $(24,178) $ 51,265 ======== ======= ====== ======== ======== ______________________ *Includes write-down of cogeneration plant, transfers and reclassifications. -64-
NORTHWEST NATURAL GAS COMPANY SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (Thousands of Dollars) Additions Balance at Charged to Balance Beginning Costs and Retire- Other at End of of Period Expenses ments Changes* P1eriod - -------------------------------------------------------------------------------------------------- Year ended December 31, 1993 - - accumulated depreciation** Utility - gas $233,385 $31,697 $ 9,944 $ 144 $255,282 Non-utility - parent 2,343 - 252 160 2,251 Non-utility - subsidiary 13,137 7,986 134 (2,594) 18,395 -------- ------- ------- ------- -------- Total $248,865 $39,683 $10,330 $(2,290) $275,928 ======== ======= ======= ======= ======== Year ended December 31, 1992 - - accumulated depreciation** Utility - gas $207,165 $29,726 $3,490 $ (16) $233,385 Non-utility - parent 2,117 - 24 250 2,343 Non-utility - subsidiary 11,044 3,309 2,179 963 13,137 -------- ------- ------ ------- -------- Total $220,326 $33,035 $5,693 $ 1,197 $248,865 ======== ======= ====== ======= ======== Year ended December 31, 1991 - - accumulated depreciation** Utility - gas $183,404 $28,718 $4,342 $ (615) $207,165 Non-utility - parent 1,946 - 20 191 2,117 Non-utility - subsidiary 8,077 4,905 23 (1,915) 11,044 -------- ------- ------ ------- -------- Total $193,427 $33,623 $4,385 $(2,339) $220,326 ======== ======= ====== ======= ======== _____________________ *Includes write-down of cogeneration plant, plus removal costs, less salvage credits. **Accumulated depreciation is maintained for all tangible property, operating and non-operating. -65-
NORTHWEST NATURAL GAS COMPANY SCHEDULE IX - SHORT-TERM BORROWINGS YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (Thousands of Dollars)
Weighted Weighted Average Average Average Maximum (Daily) (Daily) Balance Interest Rate Amount Outstanding Interest at End at End of Outstanding During Rate During of Period of Period at Month End Period Period - ----------------------------------------------------------------------------------------------------- Year ended December 31, 1993: Commercial Paper $72,548 3.4% $81,015 $39,965 3.3% Bank Borrowings - - - $ 7 3.8% Other Borrowings - - - $ 66 8.9% Year ended December 31, 1992: Commercial Paper $46,335 3.7% $96,259 $55,840 3.9% Bank Borrowings - - $ 4,500 $ 52 4.7% Other Borrowings $ 774 9.0% $ 774 $ 34 9.0% Year ended December 31, 1991: Commercial Paper $88,619 5.2% $88,619 $58,374 6.3% The weighted average interest rate during each year is computed by dividing the interest expense during the period by the average daily debt balance. -66-
NORTHWEST NATURAL GAS COMPANY SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (Thousands of Dollars)
1993 1992 1991 - --------------------------------------------------------------------------------------------- Taxes other than federal income and state excise taxes: Ad valorem $13,974 $11,509 $10,551 Business and franchise taxes and license fees 7,533 5,770 6,419 Payroll 2,878 2,623 2,684 Other 936 810 961 Miscellaneous subsidiary taxes 240 153 489 ------- ------- ------- Total $25,561 $20,865 $21,104 ======= ======= ======= Maintenance and repairs, depreciation and amortization are reported on Statements of Income. Advertising costs are insignificant. -67-
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III (Item 10. Directors and Executive Officers of the Registrant; Item 11. Executive Compensation; Item 12. Security Ownership of Certain Beneficial Owners and Management; and Item 13. Certain Relationships and Related Transactions.) Information called for by Part III (Items 10., 11., 12. and 13.) is incorporated herein by reference to the Company's definitive proxy statement, "Item (1) - Election of Directors, Executive Compensation and Compensation Pursuant to Certain Plans." See the Additional Item included in Part I for information concerning executive officers of the Company. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) The following documents are filed as part of this report: 1. A list of all Financial Statements and Supplementary Schedules is incorporated by reference to Item 8. 2. List of Exhibits filed: *(3a.) Restated Articles of Incorporation, as filed and effective June 24, 1988 and amended December 8, 1992 and December 1, 1993 (incorporated herein by reference to Exhibit 4(a) to File No. 33-51271). (3b.) Bylaws as amended December 16, 1993. *(4a.) Copy of Mortgage and Deed of Trust, dated as of July 1, 1946, to Bankers Trust and R. G. Page (to whom Stanley Burg is now successor), Trustees (incorporated herein by reference to Exhibit 7(j) in File No. 2-6494); and copies of Supplemental Indentures Nos. 1 through 14 to the Mortgage and Deed of Trust, dated respectively, as of June 1, 1949, March 1, 1954, April 1, 1956, February 1, 1959, 68- July 1, 1961, January 1, 1964, March 1, 1966, December 1, 1969, April 1, 1971, January 1, 1975, December 1, 1975, July 1, 1981, June 1, 1985 and November 1, 1985 (incorporated herein by reference to Exhibit 4(d) in File No. 33-1929); Supplemental Indenture No. 15 to the Mortgage and Deed of Trust, dated as of July 1, 1986 (filed as Exhibit (4)(c) in File No. 33-24168); Supplemental Indentures Nos. 16, 17 and 18 to the Mortgage and Deed of Trust, dated, respectively, as of November 1, 1988, October 1, 1989 and July 1, 1990 (incorporated herein by reference to Exhibit (4)(c) in File No. 33-40482); and Supplemental Indenture No. 19 to the Mortgage and Deed of Trust (incorporated herein by reference to Exhibit 4(c) in File No. 33-64014). (4a.(1)) Copy of Supplemental Indenture No. 20 to the Mortgage and Deed of Trust, dated as of June 1, 1993. *(4d.) Copy of Indenture, dated as of June 1, 1991, between the Company and Bankers Trust Company, Trustee, relating to the Company's Unsecured Medium-Term Notes (incorporated herein by reference to Exhibit 4(e) in File No. 33-64014). (4e.) Officers' Certificate dated June 12, 1991 creating Series A of the Company's Unsecured Medium-Term Notes. (4f.) Officers' Certificate dated June 18, 1993 creating Series B of the Company's Unsecured Medium-Term Notes. (10j.) Transportation Agreement, dated June 29, 1990, between the Company and Northwest Pipeline Corporation. *(10j.(1)) Replacement Firm Transportation Agreement, dated July 31, 1991, between the Company and Northwest Pipeline Corporation (incorporated herein by reference to Exhibit (10j.(2)) to Form 10-K for 1992, File -69- No. 0-994). (10j.(2)) Firm Transportation Service Agreement, dated November 10, 1993, between the Company and Pacific Gas Transmission Company. (11) Statement re computation of fully- diluted per share earnings. (12) Statement re computation of ratios. (23) Independent Auditors' Consent. Executive Compensation Plans and Arrangements: ---------------------------------------------- *(10a.) Employment agreement, dated October 27, 1983, between the Company and an executive officer (incorporated herein by reference to Exhibit (10a.) to Form 10-K for 1989, File No. 0-994). *(10b.) Executive Supplemental Retirement Income Plan, 1989 Republication, effective January 1, 1989 (incorporated herein by reference to Exhibit (10b.) to Form 10-K for 1988, File No. 0-994). *(10c.) 1985 Stock Option Plan, as amended effective January 1, 1987 (incorporated herein by reference to Exhibit (10c.) to Form 10-K for 1992, File No. 0-994). *(10e.) Executive Deferred Compensation Plan, 1990 Restatement, effective January 1, 1990 (incorporated herein by reference to Exhibit (10e.) to Form 10-K for 1990, File No. 0-994). *(10e.-1) Amendment No. 1 to Executive Deferred Compensation Plan (incorporated by reference to Exhibit (10e.-1) to Form 10-K for 1991, File No. 0-994). *(10f.) Directors Deferred Compensation Plan, 1988 Restatement, effective January 1, 1988 (incorporated herein by reference to Exhibit (10g.) to Form 10-K for 1987, File No. 0-994). -70- *(10g.) Form of Indemnity Agreement as entered into between the Company and each director and executive officer (incorporated herein by reference to Exhibit (10g.) to Form 10-K for 1988, File No. 0-994). *(10i.) Non-Employee Directors Stock Compensation Plan, as amended effective July 1, 1991 (incorporated herein by reference to Exhibit (10i.) to Form 10-K for 1991, File No. 0-994). *(10k.) Executive Annual Incentive Plan, effective March 1, 1990, as amended effective January 1, 1992 (incorporated herein by reference to Exhibit (10k.) to Form 10-K for 1991, File No. 0-994). *(10l.) Employment agreement dated November 27, 1989, between the Company and an executive officer (incorporated herein by reference to Exhibit (10l.) to Form 10-K for 1991, File No. 0-994). The Company agrees to furnish the Commission, upon request, a copy of certain instruments defining rights of holders of long-term debt of the Company or its consolidated subsidiaries which authorize securities thereunder in amounts which do not exceed 10% of the total assets of the Company. (b) Reports on Form 8-K. No Current Reports on Form 8-K were filed during the quarter ended December 31, 1993. [FN] ___________________________________ *Incorporated herein by reference as indicated. -71- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NORTHWEST NATURAL GAS COMPANY Date: March 28, 1994 By /s/ Robert L. Ridgley ----------------------- ----------------------------- Robert L. Ridgley, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Robert L. Ridgley Principal Executive Officer March 28, 1994 - ---------------------- and Director Robert L. Ridgley President and Chief Executive Officer /s/ Bruce R. DeBolt Principal Financial Officer March 28, 1994 - --------------------- Bruce R. DeBolt Senior Vice President, Finance, and Chief Financial Officer /s/ D. James Wilson Principal Accounting Officer March 28, 1994 - ----------------------- D. James Wilson Treasurer and Controller /s/ Mary Arnstad Director ) - ---------------------- ) Mary Arnstad ) ) /s/ Thomas E. Dewey, Jr. Director ) - ------------------------ ) Thomas E. Dewey, Jr. ) ) /s/ Tod R. Hamachek Director ) - ------------------------ ) Tod R. Hamachek ) ) /s/ Richard B. Keller Director ) - ------------------------ ) Richard B. Keller ) ) /s/ Wayne D. Kuni Director ) - ------------------------ ) Wayne D. Kuni ) ) /s/ Dwight A. Sangrey Director ) March 28, 1994 - ------------------------ ) Dwight A. Sangrey ) ) /s/ Melody C. Teppola Director ) - ------------------------ ) Melody C. Teppola ) ) /s/ Russell F. Tromley Director ) - ------------------------ ) Russell F. Tromley ) ) /s/ Benjamin R. Whiteley Director ) - ------------------------ ) Benjamin R. Whiteley ) ) Director ) - ------------------------ ) William R. Wiley ) ) /s/ Carlton Woodard Director ) - ------------------------ ) Carlton Woodard ) -72-
EX-3.II 2 BYLAWS Exhibit (3b.) BYLAWS of NORTHWEST NATURAL GAS COMPANY As Adopted by the Board of Directors July 17, 1975 Amended April 19, 1979 December 18, 1980 October 15, 1981 February 16, 1984 May 17, 1984 October 18, 1984 December 20, 1984, effective January 1, 1985 May 23, 1985 May 26, 1988 February 22, 1990 May 23, 1991 November 21, 1991 January 28, 1993, effective January 1, 1993 February 25, 1993 March 25, 1993 December 16, 1993 CONTENTS ARTICLE I. OFFICES: Page Section 1. Office . . . . . . . . . . . . . . . . . . . 1 Section 2. Registered Office. . . . . . . . . . . . . . 1 ARTICLE II. MEETINGS OF SHAREHOLDERS: Section 1. Annual Meeting . . . . . . . . . . . . . . . 1 Section 2. Special Meetings . . . . . . . . . . . . . . 1 Section 3. Notice . . . . . . . . . . . . . . . . . . . 1 Section 4. Fixing Record Date . . . . . . . . . . . . . 1 Section 5. Record of Shareholders . . . . . . . . . . . 2 Section 6. Quorum . . . . . . . . . . . . . . . . . . . 2 Section 7. Voting . . . . . . . . . . . . . . . . . . . 2 Section 8. Conduct of Meetings . . . . . . . . . . . . 2 ARTICLE III. BOARD OF DIRECTORS: Section 1. Directors . . . . . . . . . . . . . . . . . 2 Section 2. Chairman of the Board . . . . . . . . . . . 3 Section 3. Retired Directors . . . . . . . . . . . . . 3 Section 4. Compensation . . . . . . . . . . . . . . . . 3 ARTICLE IV. MEETINGS OF THE BOARD OF DIRECTORS: Section 1. Regular Meetings . . . . . . . . . . . . . . 3 Section 2. Special Meetings . . . . . . . . . . . . . . 3 Section 3. Waiver of Notice . . . . . . . . . . . . . . 3 Section 4. Quorum . . . . . . . . . . . . . . . . . . . 4 Section 5. Manner of Acting . . . . . . . . . . . . . . 4 Section 6. Action Without a Meeting . . . . . . . . . . 4 ARTICLE V. COMMITTEES OF THE BOARD: Section 1. Executive Committee . . . . . . . . . . . . 4 Section 2. Audit Committee . . . . . . . . . . . . . . 4 Section 3. Retirement Committee. . . . . . . . . . . . 4 Section 4. Pension Committee . . . . . . . . . . . . . 4 Section 5. Compensation Committee. . . . . . . . . . . 5 Section 6. Nominating Committee. . . . . . . . . . . . 5 Section 7. Environmental Policy Committee. . . . . . . 5 Section 8. Other Committees. . . . . . . . . . . . . . 5 Section 9. Changes of Size and Function. . . . . . . . 5 Section 10. Conduct of Meetings . . . . . . . . . . . . 5 Section 11. Compensation. . . . . . . . . . . . . . . . 5 ARTICLE VI. NOTICES: Section 1. Form and Manner . . . . . . . . . . . . . . 5 Section 2. Waiver. . . . . . . . . . . . . . . . . . . 5 ARTICLE VII. OFFICERS: Section 1. Election. . . . . . . . . . . . . . . . . . 6 Section 2. Compensation. . . . . . . . . . . . . . . . 6 Section 3. Term. . . . . . . . . . . . . . . . . . . . 6 Section 4. Removal . . . . . . . . . . . . . . . . . . 6 Section 5. President . . . . . . . . . . . . . . . . . 6 Section 6. Vice Presidents . . . . . . . . . . . . . . 6 Section 7. Secretary . . . . . . . . . . . . . . . . . 6 Section 8. Treasurer . . . . . . . . . . . . . . . . . 6 ARTICLE VIII. CONTRACTS, LOANS, CHECKS AND DEPOSITS: Section 1. Contracts . . . . . . . . . . . . . . . . . 7 Section 2. Loans . . . . . . . . . . . . . . . . . . . 7 Section 3. Checks and Drafts . . . . . . . . . . . . . 7 Section 4. Deposits. . . . . . . . . . . . . . . . . . 7 ARTICLE IX. CERTIFICATES FOR SHARES AND THEIR TRANSFER Section 1. Certificates for Shares . . . . . . . . . . 7 Section 2. Transfer. . . . . . . . . . . . . . . . . . 7 Section 3. Owner of Record . . . . . . . . . . . . . . 7 ARTICLE X. INDEMNIFICATION AND INSURANCE: Section 1. Indemnification . . . . . . . . . . . . . . 8 Section 2. Insurance . . . . . . . . . . . . . . . . . 8 ARTICLE XI. SEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 ARTICLE XII. AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 8 The following Bylaws were adopted by Northwest Natural Gas Company on July 17, 1975 superseding amended Bylaws originally adopted in conformity with an order of the District Court of the United States for the District of Oregon enforcing a plan for rearrangement of the Company's capital structure effective December 31, 1951, and subsequently amended by the stockholders on May 17, 1954, May 20, 1957, May 21, 1973, and May 20, 1974. BYLAWS OF NORTHWEST NATURAL GAS COMPANY ARTICLE I. OFFICES SECTION 1. OFFICE. The principal office of the company shall be located in the City of Portland, Oregon. The company also may have offices at such other places both within and without the State of Oregon as the board of directors from time to time may determine. SECTION 2. REGISTERED OFFICE. The registered office of the company required by law to be maintained in the state shall be at the same location as the principal office unless otherwise designated by resolution of the board of directors. ARTICLE II. MEETINGS OF SHAREHOLDERS SECTION 1. ANNUAL MEETING. The annual meeting of shareholders of the company for the election of directors and for the transaction of other business shall be held at the company's office in the City of Portland, Oregon, or such other place in that City as shall be determined by the board of directors, on the fourth Thursday of May in each year, unless such day shall be a legal holiday, in which event such meeting shall be held on the next business day. If such meeting shall not be held on such day in any year, it shall be held within 60 days thereafter on such day as shall be fixed by the board of directors and be specified in the notice of the meeting. Every such meeting shall be held at the hour of two o'clock p.m., or at such other hour as shall be fixed by the board and specified in such notice. SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders of the company may be called by the board of directors or the holders of not less than one-tenth of all shares entitled to vote at the meeting. Each special meeting shall be held for such purposes, at such place in the City of Portland, Oregon, and at such time as shall be specified in the notice thereof. SECTION 3. NOTICE. Written or printed notice stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than 10 nor more than 50 days before the date of the meeting, either personally or by mail, by or at the direction of the board of directors or the persons calling the meeting, to each shareholder of record entitled to vote at such meeting. SECTION 4. FIXING RECORD DATE. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders, or any adjournment thereof, or entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the board of directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than 50 days and, in the case of a meeting of shareholders, not less than 10 days prior to the date on which the particular action requiring such determination of shareholders is to be taken. If no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the board declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof. - 1 - SECTION 5. RECORD OF SHAREHOLDERS. The officer or agent having charge of the transfer books for shares of the company shall make, at least 10 days before each meeting of shareholders, a complete record of the shareholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order with the address of and the number of shares held by each, which record, for a period of 10 days prior to such meeting, shall be kept on file at the registered office of the company and shall be subject to inspection by any shareholder at any time during usual business hours. Such record also shall be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting. The original transfer books for shares shall be prima facie evidence as to who are the shareholders entitled to examine such record or transfer books or to vote at any meeting of the sharholders. SECTION 6. QUORUM. A majority of the shares of the company entitled to vote, represented in person or by proxy, shall constitute a quorum at all meetings of shareholders. If a quorum is present, in person or by proxy, the affirmative vote of a majority of the shares represented at the meeting and entitled to vote on the subject matter shall be the act of the shareholders, unless the vote of a greater number, or voting by classes, is required by law or the Restated Articles of Incorporation. If a quorum shall not be represented at any meeting of shareholders, the shareholders represented may adjourn the meeting from time to time without further notice. At such adjourned meeting, at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. The shareholders represented at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. SECTION 7. VOTING. Each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders, except to the extent that the voting rights of the shares of any class or classes are limited or denied by law or the Restated Articles of Incorporation. At each election of directors holders of shares of common stock have the right to cumulative voting as provided for in the Restated Articles of Incorporation. A shareholder may vote either in person or by proxy executed in writing by the shareholder or by his duly authorized attorney-in-fact. Such proxy shall be filed with the secretary of the company before or at the time of the meeting. SECTION 8. CONDUCT OF MEETINGS. Every meeting of shareholders shall be presided over by the chairman of the board, in his absence by the president, in their absence by a vice president or, if none be present, by a chairman appointed by the shareholders present at the meeting. The minutes of such meeting shall be recorded by the secretary or an assistant secretary but, if neither be present, by a secretary appointed for that purpose by the chairman of the meeting. ARTICLE III. BOARD OF DIRECTORS SECTION 1. DIRECTORS. The business and affairs of the Company shall be managed by its board of directors. The number of members of the board, their classification and terms of office, and the manner of their election and removal shall be determined as provided by the Restated Articles of Incorporation. Directors need not be residents of the State of Oregon or shareholders of the Company. No person who has reached the age of 72 years shall be eligible to be elected a director, but a director may serve until the next annual meeting of shareholders after reaching that age. - 2 - SECTION 2. CHAIRMAN OF THE BOARD. The board of directors may elect one of its members as chairman of the board. The chairman of the board, if that position be filled, shall preside at all meetings of the shareholders and the board of directors and shall have such other duties and responsibilities as may be prescribed by the board of directors. If there shall be no chairman of the board, or in his absence or disability, the president also shall exercise the duties and responsibilities of that position. SECTION 3. RETIRED DIRECTORS. Any person who, upon retirement as a director after reaching age 72, shall have served as a director of the company for ten or more years shall be appointed a retired director of the company for life. Any other person who shall have served as a director of the company may be elected by the board as a retired director of the company for one or more terms of one year or less. A retired director may attend meetings of the board but shall not have the right to vote at such meetings. SECTION 4. COMPENSATION. Directors shall receive such reasonable compensation for their services as may be fixed from time to time by resolution of the board of directors, and shall be reimbursed for their expenses properly incurred in the performance of their duties as directors. No such payment shall preclude any director from serving the company in any other capacity and receiving such reasonable compensation for such services as may be fixed by resolution of the board. Retired directors shall receive such compensation as from time to time may be fixed by resolution of the board of directors as the annual retainer for members of the board of directors. ARTICLE IV. MEETINGS OF THE BOARD OF DIRECTORS SECTION 1. REGULAR MEETINGS. Regular meetings of the board of directors shall be held on the fourth Thursday of February, April, May, July and September, and on the second Thursday of November and the third Thursday of December, at such hour and place as shall be specified in the notice of meeting. The date, time and place for holding regular meetings of the board of directors may be changed upon the giving of notice to all directors by or at the request of the chairman of the board or the president. The board may provide by resolution the time and place either within or without the State of Oregon for holding of meetings or may omit the holding of any meeting without other notice than such resolution. SECTION 2. SPECIAL MEETINGS. Special meetings of the board of directors may be called by or at the request of the chairman of the board, the president or any two directors. The person or persons authorized to call special meetings of the board may fix any place, either within or without the State of Oregon, as the place for holding any special meeting of the board called by them. Notice of the time and place of special meetings shall be given to each director at least one day in advance by the secretary or other officer performing his duties SECTION 3. WAIVER OF NOTICE. Any director may waive notice of any meeting. The attendance of a director at any meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Except as otherwise provided by law or the Restated Articles of Incorporation, neither the business to be transacted at, nor the purpose of, any regular or special meeting of the board of directors need be specified in the notice of waiver of notice of such meeting. - 3 - SECTION 4. QUORUM. A majority of the number of directors at any time fixed by resolution adopted by the affirmative vote of a majority of the entire board of directors shall constitute a quorum for the transaction of business. If a quorum shall not be present at any meeting of directors, the directors present may adjourn the meeting from time to time without further notice until a quorum shall be present. SECTION 5. MANNER OF ACTING. Except as otherwise provided by law or the Restated Articles of Incorporation, the act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors. SECTION 6. ACTION WITHOUT A MEETING. Any action required or permitted to be taken at a meeting of the board of directors may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the directors entitled to vote with respect to the subject matter thereof. ARTICLE V. COMMITTEES OF THE BOARD SECTION 1. EXECUTIVE COMMITTEE. The board of directors, at its first meeting following the annual meeting of shareholders each year, by resolution adopted by a majority of the board of directors, may appoint an executive committee composed of the chairman of the board, the president and such other number of directors as the board may from time to time determine. The president and chief executive officer shall act as chairman. The committee shall have and may exercise all of the authority of the board of directors in the management of the company, except with respect to matters upon which by law only the board of directors may act. SECTION 2. AUDIT COMMITTEE. The board of directors at any time, by resolution, may appoint an audit committee composed of three or more directors, none of whom shall be an officer of the company. The board shall designate one member of the committee as chairman. The duties of the committee shall be to discuss and review with the company's independent auditors the annual audit of the company, including the scope of the audit, and report the results of this review to the board; to meet with the independent auditors at such other times as the committee shall deem to be advisable; and to perform such other functions as the board by resolution from time to time may direct. SECTION 3. RETIREMENT COMMITTEE. The board of directors, at its first meeting following the annual meeting of shareholders each year, by resolution shall appoint a retirement committee composed of three or more directors, the majority of whom shall not be members under the company's Non-Bargaining Unit Employees Retirement Plan established by the board. The duties of the committee shall be general administration of the company's Non- Bargaining Unit Employees Retirement Plan and the committee shall be responsible for directing the carrying out of its provisions as more fully set forth under the terms of the Plan. SECTION 4. PENSION COMMITTEE. The board of directors, at its first meeting following the annual meeting of shareholders each year, by resolution shall appoint three or more directors to serve on the pension committee provided for in the company's Bargaining Unit Employees Retirement Plan established by the board. The duties of the committee shall be general administration of the Bargaining Unit Employees Retirement Plan and the committee shall be responsible for directing the carrying out of its provisions as more fully set forth under the terms of the Plan. - 4 - SECTION 5. COMPENSATION COMMITTEE. The board of directors, at its first meeting following the annual meeting of shareholders each year, by resolution may appoint a compensation committee composed of four or more directors, a majority of whom shall not be officers of the company. The board shall designate one member of the committee as chairman. The duties of the committee shall be to discuss and review the management of the affairs of the Company relating to personnel and their compensation and to perform such other functions as the board by resolution from time to time may direct. SECTION 6. NOMINATING COMMITTEE. The board of directors at any time, by resolution, may appoint a nominating committee composed of four or more directors, none of whom shall be an officer of the company. The president and chief executive officer shall designate one member of the committee as chairman. The duties of the committee shall be to recommend to the board nominees for election as a director and to perform such other functions as the board by resolution from time to time may direct. SECTION 7. ENVIRONMENTAL POLICY COMMITTEE. The board of directors, at its first meeting following the annual meeting of shareholders each year, by resolution may appoint an environmental policy committee composed of three or more directors, none of whom shall be officers of the company. The board shall designate one member of the committee as chairman. The duties of the committee shall be to develop and recommend to the Board appropriate environmental policies and to perform such other functions as the board by resolution from time to time may direct. SECTION 8. OTHER COMMITTEES. The board of directors at any time, by resolution, may appoint from among its members such other committees and the chairmen thereof as it may deem to be advisable. Each such committee shall have such powers and authority as are set forth in the resolutions pertaining thereto from time to time adopted by the board. SECTION 9. CHANGES OF SIZE AND FUNCTION. Subject to the provisions of law, the board of directors shall have the power at any time to increase or decrease the number of members of any committee, to fill vacancies thereon, to change any members thereof and to change the functions and terminate the existence thereof. SECTION 10. CONDUCT OF MEETINGS. Each committee shall conduct its meetings in accordance with the applicable provisions of these bylaws relating to the conduct of meetings of the board of directors. Each committee shall adopt such further rules and regulations regarding its conduct, keep such minutes and other records and appoint such subcommittees and assistants as it shall deem to be appropriate. SECTION 11. COMPENSATION. Persons serving on any committee shall receive such reasonable compensation for their services on such committee as may be fixed by resolution of the board of directors, provided that no person shall receive compensation for his services on any committee while serving as an officer of the company. ARTICLE VI. NOTICES SECTION 1. FORM AND MANNER. Whenever, under the provisions of law or the Restated Articles of Incorporation, notice is required to be given to any director or shareholder, unless otherwise specified, it shall be given in writing by mail addressed to such director or shareholder at his or her address as it appears on the stock transfer books or other records of the company, with postage thereon prepaid, and such notice shall be deemed to be delivered when deposited in the United States Mail. Notice to directors also may be given by telephone or in any other manner which is reasonably calculated to give adequate notice. SECTION 2. WAIVER. Whenever any notice whatever is required to be given under the provisions of law, the Restated Articles of Incorporation or these bylaws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. - 5 - ARTICLE VII. OFFICERS SECTION 1. ELECTION. The board of directors, at its first meeting following the annual meeting of shareholders each year, shall elect one of its members as president and shall elect a secretary. At such meeting, or at any other time it shall deem appropriate, the board may elect one or more vice presidents and a treasurer. The board also may elect or appoint such other officers and agents as it may deem necessary. Any two or more offices may be held by the same person, except the offices of president and secretary. SECTION 2. COMPENSATION. The officers of the company shall receive such reasonable compensation for their services as from time to time may be fixed by resolution of the board of directors. SECTION 3. TERM. The term of office of all officers shall commence upon their election or appointment and shall continue until the first meeting of the board of directors following the annual meeting of shareholders and thereafter until their successors shall be elected or until their resignation or removal. A vacancy occurring in any office of the company for whatever reason may be filled by the board. SECTION 4. REMOVAL. Any officer or agent elected or appointed by the board of directors may be removed by the board whenever in its judgment the best interests of the company will be served thereby but such removal shall be without prejudice to the contract rights, if any, of the officer or agent so removed. SECTION 5. PRESIDENT. The president shall be the chief executive officer of the company and, subject to the control of the board of directors, shall be responsible for the general administration and operation of the company. He shall have such other duties and responsibilities as may pertain to such office or be prescribed by the board of directors. In the absence or disability of the president, an officer designated by the board shall exercise the duties and responsibilities of the president. SECTION 6. VICE PRESIDENTS. Each vice president shall have such duties and responsibilities as may be prescribed by the board of directors and the president. The board or the president may confer a special title upon a vice president. SECTION 7. SECRETARY. The secretary shall record and keep the minutes of the shareholders in one or more books provided for that purpose; see that all notices are duly given in accordance with the provisions of these bylaws or as required by law; and perform such other duties as may be prescribed by the board or the president. The secretary shall have custody of the corporate seal of the company and shall affix the seal to any instrument requiring it and attest the same by his signature. The assistant secretaries shall have such duties as may be prescribed from time to time by the board, the president or the secretary. In the absence or disability of the secretary, his duties shall be performed by an assistant secretary. SECTION 8. TREASURER. The treasurer shall have charge and custody and be responsible for all funds and securities of the company; deposit all moneys and other valuable effects in the name and to the credit of the company in such depositories as may be designated by the board of directors; and disburse the funds of the company as may be authorized by the board and take proper vouchers for such disbursements. The treasurer shall have such other duties as may be prescribed from time to time by the board or the president. In the absence or disability of the treasurer, his duties shall be performed by an assistant treasurer. - 6 - ARTICLE VIII. CONTRACTS, LOANS, CHECKS AND DEPOSITS SECTION 1. CONTRACTS. The board of directors by resolution may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the company, and such authority may be general or confined to specific instances. SECTION 2. LOANS. No loans shall be contracted on behalf of the company and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the board of directors. Such authority may be general or confined to specific instances. SECTION 3. CHECKS AND DRAFTS. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the company shall be signed by such officer or officers, agent or agents of the company and in such manner as shall from time to time be determined by resolution of the board of directors. SECTION 4. DEPOSITS. All funds of the company not otherwise employed shall be deposited from time to time to the credit of the company in such banks, trust companies or other depositories as the board of directors or officers of the company designated by the board may select, or be invested as authorized by the board. ARTICLE IX. CERTIFICATES FOR SHARES AND THEIR TRANSFER SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of the company shall be issued only for whole numbers of shares and shall be in such form as the board of directors may, from time to time, prescribe in accordance with the laws of the State of Oregon. Such certificates shall be signed by the president or a vice president and by the secretary or an assistant secretary and sealed with the corporate seal or a facsimile thereof. The signatures of such officers upon a certificate may be facsimiles thereof. In case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the company as the board may authorize. SECTION 2. TRANSFER. Shares of stock of the company shall be transferable on the books of the company by the holder of record thereof, or by his legal representative who shall furnish proper evidence of authority to transfer, or by his attorney thereunto authorized by duly executed power of attorney, and on surrender for cancellation of the certificates for such shares. The board of directors may appoint one or more transfer agents and registrars of stock of the company. SECTION 3. OWNER OF RECORD. The company shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. - 7 - ARTICLE X. INDEMNIFICATION AND INSURANCE SECTION 1. INDEMNIFICATION. The company shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was director, officer, employee or agent of the company, or is or was serving at the request of the company as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise or any employee benefit plan, against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the defense or settlement of such action, suit or proceeding to the fullest extent permissible under the Oregon Business Corporation Act or the indemnification provisions of any successor Act. The foregoing rights of indemnification shall not be exclusive of any other rights to which any such person so indemnified may be entitled, under any agreement, vote of shareholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office; shall continue as to a person who has ceased to be a director, officer, employee or agent; and shall inure to the benefit of the heirs, executors and administrators of such a person. SECTION 2. INSURANCE. The company may purchase and maintain insurance (and pay the entire premium therefor) on behalf of any person who is or was a director, officer, employee or agent of the company, or is or was serving at the request of the company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity or arising out of his status as such, whether or not the company would have the power to indemnify him against such liability under the provisions of the Oregon Business Corporation Act or any successor Act; and on behalf of any person who is or was a fiduciary under the Employee Retirement Income Security Act of 1974 with regard to an employee benefit plan of the company against any liability asserted against him and incurred by him in his fiduciary capacity. ARTICLE XI. SEAL The corporate seal of the company shall be circular in form and shall bear an inscription containing the name of the company, the year of its organization, the state of its incorporation and the words "Corporate Seal." ARTICLE XII. AMENDMENTS These bylaws, or any of them, may be altered, amended or repealed, or new bylaws adopted, by resolution of a majority of the board of directors, subject to repeal or change by action of the shareholders. - 8 - EX-4 3 TWENTIETH SUPPLEMENTAL INDENTURE Exhibit (4a.(1)) [CONFORMED COPY] NORTHWEST NATURAL GAS COMPANY TO BANKERS TRUST COMPANY AND STANLEY BURG (SUCCESSOR TO R. G. PAGE AND J. C. KENNEDY), As Trustees under the Mortgage and Deed of Trust, dated as of July 1, 1946, of Portland Gas & Coke Company (now Northwest Natural Gas Company) TWENTIETH SUPPLEMENTAL INDENTURE providing, among other things, for First Mortgage Bonds, designated Secured Medium-Term Notes, Series B ------------------- Dated as of June 1, 1993 =============================================================== TWENTIETH SUPPLEMENTAL INDENTURE INDENTURE, dated as of the 1st day of June, 1993, made and entered into by and between NORTHWEST NATURAL GAS COMPANY (formerly Portland Gas & Coke Company), a corporation of the State of Oregon, whose post office address is One Pacific Square, 220 N.W. Second Avenue, Portland, Oregon 97209 (hereinafter sometimes called the Company), party of the first part, and BANKERS TRUST COMPANY, a corporation of the State of New York, whose post office address is Four Albany Street, New York, New York 10006 (hereinafter sometimes called the Corporate Trustee) and STANLEY BURG (successor to R. G. PAGE and J. C. KENNEDY), whose post office address is c/o Bankers Trust Company, Four Albany Street, New York, New York 10006 (hereinafter sometimes called the Co-Trustee), parties of the second part (the Corporate Trustee and the Co-Trustee being hereinafter together sometimes called the Trustees), as Trustees under the Mortgage and Deed of Trust, dated as of July 1, 1946 (hereinafter called the Mortgage), executed and delivered by Portland Gas & Coke Company (now Northwest Natural Gas Company) to secure the payment of bonds issued or to be issued under and in accordance with the provisions of the Mortgage, this indenture (hereinafter called Twentieth Supplemental Indenture) being supplemental thereto; WHEREAS the Mortgage was or is to be recorded in the official records of various counties in the States of Oregon and Washington which counties include or will include all counties in which this Twentieth Supplemental Indenture is to be recorded; and WHEREAS by the Mortgage the Company covenanted that it would execute and deliver such supplemental indenture or indentures and such further instruments and do such further acts as might be necessary or proper to carry out more effectually the purposes of the Mortgage and to make subject to the lien of the Mortgage any property thereafter acquired, made or constructed and intended to be subject to the lien thereof; and WHEREAS the Company executed and delivered to the Trustees its First Supplemental Indenture, dated as of June 1, 1949 (hereinafter called its First Supplemental Indenture), its Second Supplemental Indenture, dated as of March 1, 1954 (hereinafter called its Second Supplemental Indenture), its Third Supplemental Indenture, dated as of April 1, 1956 (hereinafter called its Third Supplemental Indenture), its Fourth Supplemental Indenture, dated as of February 1, 1959 (hereinafter called its Fourth Supplemental Indenture), its Fifth Supplemental Indenture, dated as of July 1, 1961 (hereinafter called its Fifth Supplemental Indenture), its Sixth Supplemental Indenture, dated as of January 1, 1964 (hereinafter called its Sixth Supplemental Indenture), its Seventh Supplemental Indenture, dated as of March 1, 1966 (hereinafter - 1 - called its Seventh Supplemental Indenture), its Eighth Supplemental Indenture, dated as of December 1, 1969 (hereinafter called its Eighth Supplemental Indenture), its Ninth Supplemental Indenture, dated as of April 1, 1971 (hereinafter called its Ninth Supplemental Indenture), its Tenth Supplemental Indenture, dated as of January 1, 1975 (hereinafter called its Tenth Supplemental Indenture), its Eleventh Supplemental Indenture, dated as of December 1, 1975 (hereinafter called its Eleventh Supplemental Indenture), its Twelfth Supplemental Indenture, dated as of July 1, 1981 (hereinafter called its Twelfth Supplemental Indenture), its Thirteenth Supplemental Indenture, dated as of June 1, 1985 (hereinafter called its Thirteenth Supplemental Indenture), its Fourteenth Supplemental Indenture, dated as of November 1, 1985 (hereinafter called its Fourteenth Supplemental Indenture), its Fifteenth Supplemental Indenture, dated as of July 1, 1986 (hereinafter called its Fifteenth Supplemental Indenture), its Sixteenth Supplemental Indenture, dated as of November 1, 1988 (hereinafter called its Sixteenth Supplemental Indenture), its Seventeenth Supplemental Indenture, dated as of October 1, 1989 (hereinafter called its Seventeenth Supplemental Indenture), and its Eighteenth Supplemental Indenture, dated as of July 1, 1990 (hereinafter called its Eighteenth Supplemental Indenture); and WHEREAS said First through Eighteenth Supplemental Indentures were filed for record, and were recorded and indexed, as a mortgage of both real and personal property, in the official records of various counties in the States of Oregon and Washington which counties include or will include all counties in which this Twentieth Supplemental Indenture is to be recorded; and WHEREAS the Company executed and delivered to the Trustees its Nineteenth Supplemental Indenture, dated as of June 1, 1991 (hereinafter called its Nineteenth Supplemental Indenture); and WHEREAS said Nineteenth Supplemental Indenture was filed for record, and was recorded and indexed, as a mortgage of both real and personal property, and financing statements were filed, in the official records of the several counties and other offices in the States of Oregon and Washington listed below, as follows: - 2 - OREGON ------- Real Property Mortgage Records ------------------------------- Book, Film County Date Recorded or Reel Page ------------ ------------- ----------- ---- Benton June 14, 1991 M-135990-91 -- Clackamas June 14, 1991 91-28344 -- Clatsop June 14, 1991 760 836 Columbia June 14, 1991 91-3499 -- Coos June 14, 1991 91-06-0532 -- Douglas June 14, 1991 1140 373 Hood River June 18, 1991 911493 -- Lane June 17, 1991 9127918 -- Lincoln June 14, 1991 230 2261 Linn June 14, 1991 566 2 Marion June 14, 1991 861 37 Multnomah June 14, 1991 2424 970 Polk June 14, 1991 242 1891 Tillamook June 14, 1991 335 496 Wasco June 14, 1991 912001 -- Washington June 14, 1991 91030895 -- Yamhill June 14, 1991 F255P2185 -- Filed as a Financing Statement ------------------------------- Office Date Filed for Record File No. ------ --------------------- ------- Secretary of State June 14, 1991 P56754 - 3 - WASHINGTON ----------- Real Property Mortgage Records ------------------------------ Book, Film County Date Recorded or Reel Page ------ ------------- ---------- ---- Clark June 14, 1991 9106140143 -- Klickitat June 14, 1991 273 904 Skamania June 18, 1991 123 757 Filed as a Financing Statement ------------------------------- Office Date Filed for Record File No. ------------------ --------------------- ----------- Secretary of State June 17, 1991 91-168-0134 - 4 - WHEREAS an instrument dated as of June 14, 1951, was executed by the Company appointing J. C. KENNEDY as Co-Trustee in succession to said R. G. PAGE (resigned) under the Mortgage and by J. C. KENNEDY accepting the appointment as Co-Trustee under the Mortgage in succession to the said R. G. PAGE, which instrument was recorded in various counties in the States of Oregon and Washington; and WHEREAS, in the Ninth Supplemental Indenture STANLEY BURG was appointed by the Company as Co-Trustee under the Mortgage in succession to said J. C. KENNEDY (resigned) and in the Ninth Supplemental Indenture STANLEY BURG accepted such appointment as Co-Trustee under the Mortgage in succession to said J. C. KENNEDY; and WHEREAS in addition to the property described in the Mortgage, as heretofore supplemented, the Company has acquired certain other property, rights and interests in property; and WHEREAS, the Company has heretofore issued, in accordance with the provisions of the Mortgage, as supplemented, and on the date hereof there remain outstanding, the following series of First Mortgage Bonds: Principal Amount Series Outstanding - -------------------------------- --------------- 8-5/8% Series due 1996.................. $11,658,000 9-3/8% Series due 2011.................. $46,000,000 9.80% Series due 2018................... $24,938,000 9-1/8% Series due 2019.................. $25,000,000 9-3/4% Series due 2015.................. $50,000,000 Secured Medium-Term Notes, Series A..... $50,000,000 ; and WHEREAS Section 8 of the Mortgage provides that the form of each series of bonds (other than the First Series) issued thereunder shall be established by Resolution of the Board of Directors of the Company; that the form of such series, as established by said Board of Directors, shall specify the descriptive title of the bonds and various other terms thereof; and that such Series may also contain such provisions not inconsistent with the provisions of the Mortgage as the Board of Directors may, in its discretion, cause to be inserted therein expressing or referring to the terms and conditions upon which such bonds are to be issued and/or secured under the Mortgage; and - 5 - WHEREAS Section 120 of the Mortgage provides, among other things, that any power, privilege or right expressly or impliedly reserved to or in any way conferred upon the Company by any provision of the Mortgage, whether such power, privilege or right is in any way restricted or is unrestricted, may (to the extent permitted by law) be in whole or in part waived or surrendered or subjected to any restriction if at the time unrestricted or to additional restriction if already restricted, and the Company may enter into any further covenants, limitations or restrictions for the benefit of any one or more series of bonds issued thereunder, or the Company may cure any ambiguity contained therein or in any supplemental indenture or may (in lieu of establishment by Resolution as provided in Section 8 of the Mortgage) establish the terms and provisions of any series of bonds other than said First Series, by an instrument in writing executed and acknowledged by the Company in such manner as would be necessary to entitle a conveyance of real estate to record in all of the states in which any property at the time subject to the lien of the Mortgage shall be situated; and WHEREAS the Company now desires to create a new series of bonds and (pursuant to the provisions of Section 120 of the Mortgage) to add to its covenants and agreements contained in the Mortgage, as heretofore supplemented, certain other covenants and agreements to be observed by it and to alter and amend in certain respects the covenants and provisions contained in the Mortgage, as heretofore supplemented and amended; and WHEREAS the execution and delivery by the Company of this Twentieth Supplemental Indenture, and the terms of the bonds of the Twenty-First Series hereinafter referred to, have been duly authorized by the Board of Directors of the Company by appropriate resolutions of said Board of Directors; NOW, THEREFORE, THIS INDENTURE WITNESSETH: That Northwest Natural Gas Company, in consideration of the premises and of One Dollar to it duly paid by the Trustees at or before the ensealing and delivery of these presents, the receipt whereof is hereby acknowledged, and in further assurance of the estate, title and rights of the Trustees, and in order further to secure the payment both of the principal of and interest and premium, if any, on the bonds from time to time issued under the Mortgage, according to their tenor and effect, and the performance of all the provisions of the Mortgage (including any instruments supplemental thereto and any modification made as in the Mortgage provided) and of said bonds, hereby grants, bargains, sells, releases, conveys, assigns, transfers, mortgages, pledges, sets over and confirms (subject, however, to Excepted Encumbrances, as defined in Section 6 of the Mortgage) unto Stanley Burg and (to the - 6 - extent of its legal capacity to hold the same for the purposes hereof) to Bankers Trust Company, as Trustees under the Mortgage, and to their successor or successors in said trust, and to said Trustees and their successors and assigns forever, all property, real, personal and mixed, acquired by the Company after the date of the Mortgage, of the kind or nature specifically mentioned in Article XXI of the Mortgage or of any other kind or nature (except any herein or in the Mortgage expressly excepted) now owned or, subject to the provisions of subsection (I) of Section 87 of the Mortgage, hereafter acquired by the Company (by purchase, consolidation, merger, donation, construction, erection or in any other way) and wheresoever situated, including (without in anywise limiting or impairing by the enumeration of the same the scope and intent of the foregoing) all lands, gas plants, by- product plants, gas holders, gas mains and pipes; all power sites, water rights, reservoirs, canals, raceways, dams, aqueducts, and all other rights or means for appropriating, conveying, storing and supplying water; all rights of way and roads; all plants for the generation of electricity by steam, water and/or other power; all power houses, street lighting systems, standards and other equipment incidental thereto, telephone, radio, television and air-conditioning systems and equipment incidental thereto, water works, water systems, steam heat and hot water plants, substations, lines, service and supply systems, bridges, culverts, tracts, ice or refrigeration plants and equipment, offices, buildings and other structures and the equipment thereof; all machinery, engines, boilers, dynamos, gas, electric and other machines, regulators, meters, transformers, generators, motors, gas, electrical and mechanical appliances, conduits, cables, gas, water, steam heat or other pipes, service pipes, fittings, valves and connections, pole and transmission lines, wires, cables, tools, implements, apparatus, furniture and chattels; all franchises, consents or permits; all lines for the transmission and distribution of gas, electric current, steam heat or water for any purpose including mains, pipes, conduits, towers, poles, wires, cables, ducts and all apparatus for use in connection therewith; all real estate, lands, easements, servitudes, licenses, permits, franchises, privileges, rights of way and other rights in or relating to public or private property, real or personal, or the occupancy of such property and (except as herein or in the Mortgage, as heretofore supplemented, expressly excepted) all right, title and interest the Company may now have or may hereafter acquire in and to any and all property of any kind or nature wheresoever situated. TOGETHER WITH all and singular the tenements, hereditaments, prescriptions, servitudes and appurtenances belonging or in anywise appertaining to the aforementioned property or any part thereof, with the reversion and reversions, remainder and remainders and (subject to the provisions of Section 57 of the Mortgage) the tolls, rents, revenues, issues, earnings, income, - 7 - product and profits thereof, and all the estate, right, title and interest and claim whatsoever, at law as well as in equity, which the Company now has or may hereafter acquire in and to the aforementioned property and franchises and every part and parcel thereof. IT IS HEREBY AGREED by the Company that, subject to the provisions of subsection (I) of Section 87 of the Mortgage, all the property, rights, and franchises acquired by the Company (by purchase, consolidation, merger, donation, construction, erection or in any other way) after the date hereof, except any herein or in the Mortgage, as heretofore supplemented, expressly excepted, shall be and are as fully granted and conveyed hereby and by the Mortgage, and as fully embraced within the lien hereof and the lien of the Mortgage, as supplemented, as if such property, rights and franchises were now owned by the Company and were specifically described herein or in the Mortgage, as heretofore supplemented, and conveyed hereby or thereby. Provided that the following are not and are not intended to be now or hereafter granted, bargained, sold, released, conveyed, assigned, transferred, mortgaged, pledged, set over or confirmed hereunder and are hereby expressly excepted from the lien and operation of this Twentieth Supplemental Indenture and from the lien and operation of the Mortgage, as heretofore supplemented, viz: (1) cash, shares of stock, bonds, notes and other obligations and other securities not hereafter specifically pledged, paid, deposited, delivered or held under the Mortgage, as heretofore supplemented, or covenanted so to be; (2) merchandise, equipment, apparatus, materials or supplies held for the purpose of sale or other disposition in the usual course of business; fuel, oil and similar materials and supplies consumable in the operation of any of the properties of the Company; all aircraft, tractors, rolling stock, trolley coaches, buses, motor coaches, automobiles, motor trucks, and other vehicles and materials and supplies held for the purpose of repairing or replacing (in whole or in part) any of the same; (3) bills, notes and accounts receivable, judgments, demands and choses in action, and all contracts, leases and operating agreements not specifically pledged under the Mortgage, as heretofore supplemented, or covenanted so to be; (4) the last day of the term of any lease or leasehold which may be or become subject to the lien of the Mortgage; (5) gas, petroleum, carbon, chemicals, light oils, tar products, electric energy, steam, water, ice, and other materials or products, manufactured, stored, generated, produced, purchased or acquired by the Company for sale, distribution or use in the ordinary course of its business; all timber, minerals, mineral rights and royalties and all Natural Gas and Oil Production Property, as defined in Section 4 of the Mortgage; and (6) the Company's franchise to be a corporation; provided, however, that the property and rights expressly excepted from the lien and operation of this Twentieth Supplemental Indenture and from the lien and operation of the - 8 - Mortgage, as heretofore supplemented, in the above subdivisions (2) and (3) shall (to the extent permitted by law) cease to be so excepted in the event and as of the date that either or both of the Trustees or a receiver or trustee shall enter upon and take possession of the Mortgaged and Pledged Property in the manner provided in Article XIII of the Mortgage by reason of the occurrence of a Default as defined in Section 65 thereof. TO HAVE AND TO HOLD all such properties, real, personal and mixed, granted, bargained, sold, released, conveyed, assigned, transferred, mortgaged, pledged, set over or confirmed by the Company as aforesaid, or intended so to be, unto Stanley Burg and (to the extent of its legal capacity to hold the same for the purposes hereof) to Bankers Trust Company, as Trustees, and their successors and assigns forever. IN TRUST NEVERTHELESS, for the same purposes and upon the same terms, trusts and conditions and subject to and with the same provisos and covenants as are set forth in the Mortgage, as heretofore supplemented, this Twentieth Supplemental Indenture being supplemental thereto. AND IT IS HEREBY COVENANTED by the Company that all the terms, conditions, provisos, covenants and provisions contained in the Mortgage, as heretofore supplemented, shall affect and apply to the property hereinbefore described and conveyed, and to the estates, rights, obligations and duties of the Company and the Trustees and the beneficiaries of the trust with respect to said property, and to the Trustees and their successors in the trust, in the same manner and with the same effect as if the said property had been owned by the Company at the time of the execution of the Mortgage, and had been specifically and at length described in and conveyed to said Trustees by the Mortgage as a part of the property therein stated to be conveyed. The Company further covenants and agrees to and with the Trustees and their successors in said trust under the Mortgage, as follows: ARTICLE I. Twenty-First Series of Bonds. SECTION 1.0.1. There shall be a series of bonds designated "Secured Medium-Term Notes, Series B" (herein sometimes referred to as the "Twenty-first Series"), each of which shall also bear the descriptive title "First Mortgage Bond", and the form thereof, which shall be established by Resolution of the Board of Directors of the Company, shall contain suitable provisions with - 9 - respect to the matters hereinafter in this Article I specified. Bonds of the Twenty-first Series shall be issued from time to time as fully registered bonds in denominations of One Thousand Dollars and, at the option of the Company, in any multiple or multiples of One Thousand Dollars (the exercise of such option to be evidenced by the execution and delivery thereof); each bond of the Twenty-first Series shall mature on such date, shall bear interest at such rate or rates (which may be either fixed or variable) and have such other terms and provisions not inconsistent with the Mortgage as the Board of Directors may determine in accordance with a Resolution filed with the Corporate Trustee referring to this Twentieth Supplemental Indenture; interest on each bond of the Twenty-first Series which bears interest at either a fixed rate or a variable rate shall be payable on the dates which shall be established prior to the date of first authentication of such bond and set forth in such bond and at maturity (each an interest payment date). Notwithstanding the foregoing, so long as there shall be no existing default in the payment of interest on the bonds of the Twenty-first Series having the same designated interest rate, interest payment dates and maturity, each of such bonds authenticated by the Corporate Trustee after the Record Date for any interest payment date for such bonds, and prior to such interest payment date (unless the Issue Date is after such Record Date), shall be dated the date of authentication, but shall bear interest from such interest payment date, and the person in whose name such bond shall have been registered at the close of business on such Record Date shall be entitled to receive the interest payable on such interest payment date, notwithstanding the cancellation of such bond upon any transfer or exchange thereof subsequent to such Record Date and on or prior to such interest payment date; provided, that, (i) if the Issue Date of bonds of the Twenty- first Series having the same designated interest rate, interest payment dates and maturity shall be after a Record Date and prior to the corresponding interest payment date, such bonds shall bear interest from the Issue Date, but payment of interest shall commence on the second interest payment date succeeding the Issue Date, and (ii) interest payable on the maturity date will be payable to the person to whom the principal thereof shall be payable. "Record Date" for bonds of the Twenty-first Series having the same designated interest rate, interest payment dates and maturity shall mean (A) the date which shall be established prior to the date of first authentication of such bonds and set forth in such bonds, or (B) if no such date shall be established with respect to such bonds, the date 15 calendar days prior to any interest payment date for such bonds. "Issue Date" with respect to bonds of the Twenty-first Series having the same designated interest rate, interest payment dates and maturity shall mean (a) the date which shall be established prior to the date of first authentication of such bonds and set forth in such bonds, or (b) if no such date shall be established with respect to such bonds, the - 10 - date of first authentication of such bonds. The principal of, and premium, if any, and interest on, each bond of the Twenty- first Series shall be payable at the office or agency of the Company in the Borough of Manhattan, The City of New York, in such coin or currency of the United States of America as at the time of payment is legal tender for public and private debts. Bonds of the Twenty-first Series shall be dated as in Section 10 of the Mortgage provided. (I) Bonds of the Twenty-first Series shall be redeemable either at the option of the Company or pursuant to the requirements of the Mortgage, in whole at any time, or, if specified on the face of any bond of the Twenty-first Series, in part from time to time, prior to maturity, upon notice, as provided in Section 52 of the Mortgage, mailed at least thirty (30) days prior to the date fixed for redemption, as the Board of Directors may determine in accordance with a Resolution filed with the Corporate Trustee referring to this Twentieth Supplemental Indenture; provided, however, that bonds of the Twenty-first Series shall not be redeemable pursuant to Section 64 of the Mortgage. (II) At the option of the registered owner, any bonds of the Twenty-first Series, upon surrender thereof, for cancellation, at the office or agency of the Company in the Borough of Manhattan, The City of New York, shall (subject to the provisions of Section 12 of the Mortgage) be exchangeable for a like aggregate principal amount of bonds of the same series of other authorized denominations which have the same Issue Date, maturity date, and redemption provisions, if any, and which bear interest at the same rate. Transfers of bonds of the Twenty-first Series may be registered (subject to the provisions of Section 12 of the Mortgage) at the office or agency of the Company in the Borough of Manhattan, The City of New York. Upon any registration of transfer or exchange of bonds of the Twenty-first Series, the Company may make a charge therefor sufficient to reimburse it for any tax or taxes or other governmental charge, as provided in Section 12 of the Mortgage, but the Company hereby waives any right to make a charge in addition thereto for any registration of exchange or transfer of bonds of the Twenty-first Series. ARTICLE II. Miscellaneous Provisions. SECTION 2.0.1. Subject to the amendments provided for in this Twentieth Supplemental Indenture, the terms defined in the - 11 - Mortgage, as heretofore supplemented, shall, for all purposes of this Twentieth Supplemental Indenture, have the meanings specified in the Mortgage, as heretofore supplemented. SECTION 2.0.2. The holders of bonds of the Twenty- first Series consent that the Company may, but shall not be obligated to, fix a record date for the purpose of determining the holders of bonds of the Twenty-first Series entitled to consent to any amendment, supplement or waiver. If a record date is fixed, those persons who were holders at such record date (or their duly designated proxies), and only those persons, shall be entitled to consent to such amendment, supplement or waiver or to revoke any consent previously given, whether or not such persons continue to be holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date. SECTION 2.0.3. The Trustees hereby accept the trusts hereby declared, provided, created or supplemented, and agree to perform the same upon the terms and conditions herein and in the Mortgage, as heretofore supplemented, set forth, including the following: The Trustees shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Twentieth Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made by the Company solely. In general each and every term and condition contained in Article XVII of the Mortgage shall apply to and form part of this Twentieth Supplemental Indenture with the same force and effect as if the same were herein set forth in full, with such omissions, variations and insertions, if any, as may be appropriate to make the same conform to the provisions of this Twentieth Supplemental Indenture. SECTION 2.0.4. Whenever in this Twentieth Supplemental Indenture any of the parties hereto is named or referred to, this shall, subject to the provisions of Articles XVI and XVII of the Mortgage, be deemed to include the successors or assigns of such party, and all the covenants and agreements in this Twentieth Supplemental Indenture contained by or on behalf of the Company or by or on behalf of the Trustees shall bind and inure to the benefit of the respective successors and assigns of such parties whether so expressed or not. SECTION 2.0.5. Nothing in this Twentieth Supplemental Indenture, expressed or implied, is intended, or shall be construed, to confer upon, or to give to, any person, firm or corporation, other than the parties hereto and the holders of the bonds and coupons outstanding under the Mortgage, any right, remedy, or claim under or by reason of this Twentieth Supplemental - 12 - Indenture or any covenant, condition, stipulation, promise or agreement hereof, and all the covenants, conditions, stipulations, promises and agreements by or on behalf of the Company as set forth in this Twentieth Supplemental Indenture shall be for the sole and exclusive benefit of the parties hereto, and of the holders of the bonds and of the coupons outstanding under the Mortgage. SECTION 2.0.6. Except to the extent specifically provided herein, no provision of this Twentieth Supplemental Indenture is intended to reinstate any provisions in the Mortgage which were amended and superseded by the amendments to the Trust Indenture Act of 1939 effective as of November 15, 1990. SECTION 2.0.7. This Twentieth Supplemental Indenture has been executed in several identical counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. IN WITNESS WHEREOF, Northwest Natural Gas Company, party hereto of the first part, has caused its corporate name to be hereunto affixed, and this instrument to be signed and sealed by its President or one of its Vice Presidents, and its corporate seal to be attested by its Secretary or one of its Assistant Secretaries for and in its behalf on the 14th day of June, 1993, as of June 1, 1993, in Portland, Oregon; Bankers Trust Company, one of the parties hereto of the second part, has caused its corporate name to be hereunto affixed, and this instrument to be signed and sealed by one of its Vice Presidents or one of its Assistant Vice Presidents and its corporate seal to be attested by one of its Assistant Secretaries on the 14th day of June, 1993, as of June 1, 1993, in The City of New York; and Stanley Burg, one of the parties hereto of the second part, has hereunto set his hand and affixed his seal, in The City of New York, on the 14th day of June, 1993, as of June 1, 1993. NORTHWEST NATURAL GAS COMPANY By /s /Bruce R. DeBolt ---------------------------- Senior Vice President and Chief Financial Officer - 13 - Attest: /s/ C. J. Rue ------------------ Secretary Executed, sealed and delivered by NORTHWEST NATURAL GAS COMPANY in the presence of: /s/ P. L. Myers ------------------------- /s/ Lou-Wayne Steiger ------------------------- - 14 - BANKERS TRUST COMPANY, as Trustee, By /s/ Samir Pandiri -------------------------- Assistant Vice President Attest: /s/ Shikha Dombek --------------------- Assistant Secretary /s/ Stanley Burg -------------------------- STANLEY BURG, as Trustee Executed, sealed and delivered by BANKERS TRUST COMPANY and STANLEY BURG in the presence of: /s/ Kenwyn Hackshaw - ----------------------------- /s/ John Florio - ----------------------------- - 15 - STATE OF OREGON ) : ss.: COUNTY OF MULTNOMAH ) June 14, A.D. 1993. Before me personally appeared BRUCE R. DEBOLT, who, being duly sworn, did say that he is Senior Vice President and Chief Financial Officer, of NORTHWEST NATURAL GAS COMPANY and that the seal affixed to the foregoing instrument is the corporate seal of said Corporation and that said instrument was signed and sealed in behalf of said Corporation by authority of its Board of Directors; and he acknowledged said instrument to be its voluntary act and deed. On this 14th day of June, 1993, before me personally appeared BRUCE R. DEBOLT, to me known to be Senior Vice President and Chief Financial Officer of NORTHWEST NATURAL GAS COMPANY, one of the corporations that executed the within and foregoing instrument, and acknowledged said instrument to be the free and voluntary act and deed of said Corporation, for the uses and purposes therein mentioned, and on oath stated that he was authorized to execute said instrument and that the seal affixed is the corporate seal of said Corporation. IN WITNESS WHEREOF I have hereunto set my hand and affixed my official seal the day and year first above written. /s/ Virginia V. Burgess ----------------------------- Virginia V. Burgess Notary Public - Oregon Commission No. 004344 My Commission Expires March 24, 1995 - 16 - STATE OF NEW YORK ) : ss.: COUNTY OF NEW YORK ) June 14, A.D. 1993. Before me personally appeared SAMIR PANDIRI, who, being duly sworn, did say that he is an Assistant Vice President of BANKERS TRUST COMPANY and that the seal affixed to the foregoing instrument is the corporate seal of said Corporation and that said instrument was signed and sealed in behalf of said Corporation by authority of its Board of Directors; and he acknowledged said instrument to be its voluntary act and deed. On this 14th day of June, 1993, before me personally appeared SAMIR PANDIRI, to me known to be an Assistant Vice President of BANKERS TRUST COMPANY, one of the corporations that executed the within and foregoing instrument, and acknowledged said instrument to be the free and voluntary act and deed of said Corporation, for the uses and purposes therein mentioned, and on oath stated that he was authorized to execute said instrument and that the seal affixed is the corporate seal of said Corporation. IN WITNESS WHEREOF I have hereunto set my hand and affixed my official seal the day and year first above written. Marjorie Stanley --------------------------- Marjorie Stanley Notary Public, State of New York No. 41-4986405 My Commission Expires 9/16/93 - 17 - STATE OF NEW YORK ) : ss.: COUNTY OF NEW YORK ) June 14, A.D. 1993. Before me personally appeared the above-named STANLEY BURG and acknowledged the foregoing instrument to be his voluntary act and deed. On this day personally appeared before me STANLEY BURG to me known to be the individual described in and who executed the within and foregoing instrument, and acknowledged that he signed the same as his free and voluntary act and deed, for the uses and purposes therein mentioned. Given under my hand and official seal this 14th day of June, 1993. /s/ Marjorie Stanley --------------------------- Marjorie Stanley Notary Public, State of New York No. 41-4986405 My Commission Expires 9/16/93 - 18 - EX-4 4 OFFICERS' CERTIFICATE Exhibit (4e.) NORTHWEST NATURAL GAS COMPANY 220 N. W. Second Avenue Portland, Oregon 97209 (503) 226-4211 OFFICERS' CERTIFICATE (Under Sections 201 and 301 of the Indenture referred to herein of Northwest Natural Gas Company) Pursuant to Sections 201 and 301 of the Indenture, dated as of June 1, 1991 (the "Indenture"), from Northwest Natural Gas Company (the "Company") to Bankers Trust Company, as trustee (the "Trustee"), and pursuant to the resolutions of the Company's Board of Directors, dated September 20, 1990 and May 23, 1991 (the "Board Resolutions"), we, Bruce R. DeBolt and C. J. Rue, the Senior Vice President and Secretary, respectively, of the Company do hereby certify that: 1. The Company's Unsecured Medium-Term Notes, Series A (the "Notes"), heretofore established by the Board Resolutions, shall, in the case of Notes bearing interest at a fixed rate, be in substantially the form set forth in Exhibit 1 hereto, and in the case of Notes bearing interest at a variable rate or not bearing interest, be in substantially the form or forms set forth in a Company Order or Orders or in the form or forms established by procedures, acceptable to the Trustee, specified in a Company Order or Orders, and shall have the following title, terms and characteristics (the lettered clauses set forth below corresponding to the lettered subsections of Section 301 of the Indenture, with terms used and not defined herein having the meanings specified in the Indenture): (a) the title of the Securities of such series shall be "Unsecured Medium-Term Notes, Series A"; (b) the aggregate principal amount of Notes which may be authenticated and delivered under the Indenture shall be limited to $100,000,000, except as contemplated in Section 301(b) of the Indenture; (c) the Notes shall be subject to Periodic Offering; -1- (d) the date or dates on which the principal of the Notes shall be payable shall be determined by the officers of the Company and communicated to the Trustee by a Company Order or Orders or determined by the officers of the Company or by its agents and communicated to the Trustee in accordance with procedures, acceptable to the Trustee, specified in a Company Order or Orders (both of such methods of determination being hereinafter referred to as "determined pursuant to Company Order"); provided, however, that no Note shall have a term of less than nine months or more than 30 years; (e)(i) the rate or rates, if any, at which the Notes, or any Tranche thereof, shall bear interest, or the method or methods by which such rate or rates shall be determined, shall be determined pursuant to Company Order; (ii) interest, if any, shall accrue on each Note from the date of its original issue or from the last date to which interest has been paid or duly provided for; (iii) if interest at a fixed rate shall be payable on the Notes, or any Tranche thereof, the Interest Payment Dates for such Notes shall be June 1, and December 1, and the Regular Record Dates with respect thereto shall be May 15 and November 15, respectively; (iv) if interest at variable rates shall be payable on the Notes, or any Tranche thereof, the Interest Payment Dates and Regular Record Dates with respect thereto shall be determined pursuant to Company Order; and (v) all interest payments (other than interest payable on the Interest Payment Date which coincides with the Stated Maturity of the final payment of principal of any Note or upon redemption) will be made by check mailed to the person entitled thereto as provided in Section 307 of the Indenture; provided, however, that for so long as the Notes shall be held by a depository (or its nominee) fo purposes of a book-entry system of payments and transfers, payment of -2- principal of, and premium, if any, and interest on, the Notes may be made by wire transfer or such other means as shall be specified in an instrument executed on behalf of the Company and such depository and accepted by the Trustee; (f) not applicable; (g) the Notes, or any Tranche thereof, shall be redeemable as determined pursuant to Company Order; (h) the Notes, or any Tranche thereof, shall be subject to redemption pursuant to a sinking fund or analogous device, or to purchase at the option of a Holder thereof, as determined pursuant to Company Order; (i) the Notes, or any Tranche thereof, shall be issuable in denominations of $100,000 and any amount in excess thereof that is an integral multiple of $1,000; (j) not applicable; (k) not applicable; (l) any additional Events of Default with respect to, and any additional covenants of the Company for the benefit of the Holders of, the Notes, or any Tranche thereof, will be determined pursuant to Company Order; (m) not applicable; (n) not applicable; (o) not applicable; (p) any exceptions to Section 113 of the Indenture, or variations in the definition of Business Day in the Indenture, with respect to the Notes, or Tranche thereof, will be determined pursuant to Company Order; (q) the terms, if any, required to permit the Notes, or any Tranche thereof, to be registered pursuant to - 3 - a non-certificated system of registration will be determined pursuant to Company Order; and (r) the Notes, or any Tranche thereof, shall have such further terms as are (i) set forth in the form of Note attached hereto as Exhibit 1, if interest at a fixed rate shall be payable on any Tranche of the Notes, or as shall be set forth in any form of Note of any Tranche which is established by a Company Order or Orders or by procedures, acceptable to the Trustee, specified in a Company Order or Orders, and (ii) not inconsistent with the provisions of the Indenture, as shall be determined pursuant to Company Order. 2. Pursuant to Section 301 of the Indenture, the terms of any Tranche of the Notes, to the extent not established in the Indenture, by an indenture supplemental to the Indenture, in the Board Resolutions or herein, shall be determined by the officers of the Company and communicated to the Trustee by a Company Order or Orders substantially in the form attached hereto as Exhibit 2, or determined by an officer or officers of the Company or its agent or agents and communicated to the Trustee in accordance with procedures, acceptable to the Trustee, specified in such Company Order or Orders. 3. The officers and agents of the Company who, initially, are authorized, from time-to-time, to execute and deliver Company Orders and to carry out procedures specified therein are listed on the Incumbency Certificate, dated the date hereof, attached hereto as Exhibit 3. 4. An Opinion of Counsel, of even date herewith, complying with Section 303 of the Indenture, is attached hereto as Exhibit 4. - 4 - IN WITNESS WHEREOF, we have hereunto signed our names this 12th day of June, 1991. /s/ Bruce R. DeBolt ----------------------------- Senior Vice President /s/ C. J. Rue ------------------------------ Secretary - 5 - EX-4 5 OFFICERS' CERTIFICATE Exhibit (4f.) OFFICERS' CERTIFICATE --------------------- (Under Sections 201 and 301 of the Indenture referred to herein of Northwest Natural Gas Company) Pursuant to Sections 201 and 301 of the Indenture, dated as of June 1, 1991 (the "Indenture"), from Northwest Natural Gas Company (the "Company") to Bankers Trust Company, as trustee (the "Trustee"), and pursuant to the resolutions of the Company's Board of Directors, dated May 27, 1993 (the "Board Resolutions"), we, Bruce R. DeBolt and C. J. Rue, the Senior Vice President and Secretary, respectively, of the Company, do hereby certify that: 1. Unless otherwise provided in a subsequent Officers' Certificate under Sections 201 and 301 of the Indenture, the Company's Unsecured Medium-Term Notes, Series B (the "Notes"), heretofore established by the Board Resolutions, shall, in the case of Notes bearing interest at a fixed rate, be in substantially the form set forth in Exhibit 1 hereto, and in the case of Notes bearing interest at a variable rate or not bearing interest, be in substantially the form or forms set forth in a Company Order or Orders or in the form or forms established by procedures, acceptable to the Trustee, specified in a Company Order or Orders, and shall have the following title, terms and characteristics (the lettered clauses set forth below corresponding to the lettered subsections of Section 301 of the Indenture, with terms used and not defined herein having the meanings specified in the Indenture): (a) the title of the Securities of such series shall be "Unsecured Medium-Term Notes, Series B"; (b) not applicable; (c) the Notes shall be subject to Periodic Offering; (d) the date or dates on which the principal of the Notes shall be payable shall be determined by the officers of the Company and communicated to the Trustee by a Company Order or Orders or determined by the officers of the Company or by its agents and communicated to the Trustee in accordance with procedures, acceptable to the Trustee, specified in a Company Order or Orders (both of such methods of determination being hereinafter referred to as "determined pursuant to Company Order"); - 1 - (e) (i) the rate or rates, if any, at which the Notes, or any Tranche thereof, shall bear interest, or the method or methods by which such rate or rates shall be determined, shall be determined pursuant to Company Order; (ii) interest, if any, shall accrue on each Note, (A) unless otherwise determined pursuant to Company Order, from the date of its original issue, or (B) from the last date to which interest has been paid or duly provided for; (iii) if interest at a fixed rate shall be payable on the Notes, or any Tranche thereof, the Interest Payment Dates for such Notes, unless otherwise determined pursuant to Company Order, shall be June 1, and December 1, and the Regular Record Dates with respect thereto shall be May 15 and November 15, respectively; (iv) if interest at variable rates shall be payable on the Notes, or any Tranche thereof, the Interest Payment Dates and Regular Record Dates with respect thereto shall be determined pursuant to Company Order; and (v) unless otherwise determined pursuant to Company Order, all interest payments (other than interest payable on the Interest Payment Date which coincides with the Stated Maturity of the final payment of principal of any Note or upon redemption) will be made by check mailed to the person entitled thereto as provided in Section 307 of the Indenture; provided, however, that for so long as the Notes shall be held by a depository (or its nominee) for purposes of a book- entry system of payments and transfers, payment of principal of, and premium, if any, and interest on, the Notes may be made by wire transfer or such other means as shall be specified in an instrument executed on behalf of the Company and such depository and accepted by the Trustee; (f) not applicable; (g) the Notes, or any Tranche thereof, shall be redeemable at the option of the Company as determined pursuant to Company Order; (h) the Notes, or any Tranche thereof, shall be subject to redemption pursuant to a sinking fund or analogous device, or to purchase at the option of a Holder thereof, as determined pursuant to Company Order; (i) not applicable; (j) not applicable; (k) not applicable; (l) any additional Events of Default with respect to, and any additional covenants of the Company for the benefit of the Holders of, the Notes, or any Tranche thereof, will be determined pursuant to Company Order; - 2 - (m) not applicable; (n) not applicable; (o) not applicable; (p) any exceptions to Section 113 of the Indenture, or variations in the definition of Business Day in the Indenture, with respect to the Notes, or Tranche thereof, will be determined pursuant to Company Order; (q) the terms, if any, required to permit the Notes, or any Tranche thereof, to be registered pursuant to a non-certificated system of registration will be determined pursuant to Company Order; and (r) the Notes, or any Tranche thereof, shall have such further terms as are (i) set forth in the form of Note attached hereto as Exhibit 1, if interest at a fixed rate shall be payable on any Tranche of the Notes, or as shall be set forth in any form of Note of any Tranche which is established by a Company Order or Orders or by procedures, acceptable to the Trustee, specified in a Company Order or Orders, and (ii) not inconsistent with the provisions of the Indenture, as shall be determined pursuant to Company Order. 2. Pursuant to Section 301 of the Indenture, the terms of any Tranche of the Notes, to the extent not established in the Indenture, by an indenture supplemental to the Indenture, in the Board Resolutions or herein, shall be determined by the officers of the Company and communicated to the Trustee by a Company Order or Orders substantially in the form attached hereto as Exhibit 2, or determined by an officer of officers of the Company or its agent or agents and communicated to the Trustee in accordance with procedures, acceptable to the Trustee, specified in such Company Order or Orders. 3. The officers and agents of the Company who, initially, are authorized, from time-to-time, to execute and deliver Company Orders and to carry out procedures specified therein are listed on the Incumbency Certificate, dated the date hereof, attached hereto as Exhibit 3. 4. The Opinion of Counsel, of even date herewith, complying with Section 303 of the Indenture, is attached hereto as Exhibit 4. - 3 - IN WITNESS WHEREOF, we have hereunto signed our names this 18th day of June, 1993. /s/ ---------------------------- Senior Vice President /s/ ---------------------------- Secretary - 4 - EX-10 6 TRANSPORTATION AGREEMENT Exhibit (10j.) 2595S TRANSPORTATION AGREEMENT THIS AGREEMENT is made and entered into this 29th day of June, 1990, by and between NORTHWEST PIPELINE CORPORATION, hereinafter referred to as "Transporter", and NORTHWEST NATURAL GAS COMPANY, hereinafter referred to as "Shipper". RECITALS: A. Shipper is a local distribution company of natural gas. B. Shipper owns or controls certain supplies of natural gas which it desires Transporter to transport for Shipper's account pursuant to Part 284 of the regulations of the FERC. C. On January 29, 1990, Transporter offered all potential shippers an opportunity to elect to participate in the proposed expansion of Transporter's mainline for firm transportation service. D. Shipper was one of the parties responding to Transporter's January 29, 1990 offer, by making a complete written request to Transporter for the transportation service described herein on March 1, 1990. E. Transporter has designed a system expansion for the shippers responding to its January 29, 1990 offer and will file an application with the Federal Energy Regulatory Commission ("FERC") requesting certificate authority to construct and operate on a rolled in basis the facilities necessary to provide the transportation service under this Agreement. AGREEMENT: NOW, THEREFORE, in consideration of the premises and mutual covenants set forth herein, the parties agree as follows: ARTICLE I - GAS DELIVERIES AND REDELIVERIES 1.1 Subject to the terms, conditions and limitations hereof, Transporter agrees to receive from Shipper at the Receipt Point(s) specified in Exhibit A herein, transport and deliver to Shipper at the Delivery Point(s) specified in Exhibit B herein, the following quantities of natural gas, known as Transportation Contract Demand: Up to 50,000 MMBtu's/day provided that Transporter's receipt of gas at any receipt point for Shipper's account hereunder on any day shall not exceed the maximum daily quantity set forth for such receipt point on Exhibit "A" hereto, and provided that Transporter's daily obligation to deliver gas to -1- Shipper at any delivery point under this Transportation Agreement shall not exceed the Maximum Daily Delivery Obligation ("MDDO") set forth in Exhibit "B" of this Agreement. 1.2 Pursuant to Article XIV of the General Transportation Terms and Conditions applicable to this Agreement, Shipper has elected to furnish fuel and lost or unaccounted for gas volumes in-kind. Transporter may receive volumes of gas in excess of the maximum daily quantity set forth in Section 1.1 when necessary to cover such fuel gas reimbursement while making full delivery of such maximum daily quantity or to cover certain balancing receipts agreed to by the parties. 1.3 Such transportation shall be on a firm basis. ARTICLE II - TRANSPORTATION RATES AND CHARGES 2.1 (a) Shipper agrees to pay Transporter for all natural gas transportation service rendered under the terms of this Agreement in accordance with Transporter's Rate Schedule TF-1 as filed with the Federal Energy Regulatory Commission ("FERC"), and as such rate schedule may be amended or superseded from time to time. (b) Payment of applicable reservation charges under this Agreement will commence the date that Transporter has in place the facilities necessary to provide the transportation service. 2.2 This Agreement shall be subject to the provisions of such Rate Schedule and the General Transportation Terms and Conditions applicable thereto (and as they may be amended by Article VIII of this Agreement) and effective from time to time, which by this reference are incorporated herein and made a part hereof. ARTICLE III - GOVERNMENTAL REQUIREMENTS 3.1 Shipper shall reimburse Transporter for any and all filing fees incurred by Transporter in seeking governmental authorization for the initiation, extension or termination of service under this Transportation Agreement. 3.2 The transportation service contemplated herein shall be provided by Transporter pursuant to Section 284.223 of the FERC's regulations. The obligation of each party for transportation service under this Agreement beyond 120 days from the date service is initiated hereunder are conditioned upon each party obtaining and accepting from governmental authorities having jurisdiction such authorizations as may be necessary, including, but not limited to, FERC approval of a prior notice application. If any required prior notice approval is not received by Transporter within one (1) year from the date Transporter has in place the facilities necessary to provide the transportation, the -2- Agreement may be terminated upon 30 days prior written notice by either party to the other party. 3.3 In the event that Transporter has not filed an application with FERC requesting certificate authority to construct and operate the facilities necessary to provide the transportation service under this Agreement by April 1, 1991, Shipper may terminate this Agreement with thirty (30) days prior written notice. 3.4 The gas to be received and transported by Transporter hereunder shall be limited to gas for which Transporter has been furnished offers of take-or-pay credits which comply with and are required by 18 CFR 284.8(f) Transporter may waive the foregoing requirements on gas received for Shipper's account hereunder pursuant to another agreement between Transporter and any party, including Shipper, for which the shipping party under such Agreement has already furnished offers of take-or-pay credits. Furthermore, Transporter and Shipper may agree in a written amendment to this Agreement for an alternative procedure under which Transporter may verify and monitor that it has received sufficient offers of take-or-pay credits on the gas transported in conformance with 18 CFR Section 284.8(f). 3.5 Upon termination, this Transportation Agreement shall cease to have any force or effect, save as to any unsatisfied obligations or liabilities of either party arising hereunder prior to the date of such termination, or arising thereafter as a result of such termination; provided, however, that this provision shall not supersede any abandonment authorization which may be required. 3.6 (Section 3.6 shall be applicable only for the transportation of imported natural gas.) Shipper hereby acknowledges and agrees that either it or its buyer or seller is the "importer of record" and it will comply with all requirements for reporting and submitting payment of duties, fees and taxes to the United States or agencies thereof to be made on imported natural gas and for making the declaration of entry pursuant to 19 CFR Section 141.19. Shipper agrees to indemnify and hold Transporter harmless from any and all claims of damage or violation of any applicable laws, ordinances and statutes which pertain to the importation of the gas transported hereunder and which require reporting and/or filing of fees in connection with said import. ARTICLE IV - TERM 4.1 This Agreement becomes effective the date hereof and shall remain in effect for a period of fifteen (15) years commencing on the date Transporter places in service the facilities necessary to provide the transportation service and year to year thereafter subject to termination by either party either at the expiration of the primary term or upon any anniversary thereafter by giving written notice so stating to the other party at least twelve (12) months in advance. -3- 4.2 In the event Shipper desires to terminate this Agreement at any time prior to or after the in-service date of the new facilities and there is a party willing to contract for comparable capacity under terms and conditions acceptable by Transporter, Transporter will allow Shipper to terminate this Agreement upon execution of a Transportation Agreement with the new party. ARTICLE V - WARRANTY OF ELIGIBILITY FOR TRANSPORTATION 5.1 Any shipper under this Rate Schedule warrants for itself, its successors and assigns, that all gas delivered to Transporter for transportation hereunder shall be eligible for transportation in interstate commerce under applicable rules, regulations or orders of the FERC. Shipper will indemnify Transporter and save it harmless from all suits, actions, damages, costs, losses, expenses (including reasonable attorney fees) and regulatory proceedings, arising from breach of this warranty. ARTICLE VI - NOTICES 6.1 Unless herein provided to the contrary, any notice called for in this Transportation Agreement shall be in writing and shall be considered as having been given if delivered personally, or by mail or telegraph with all postage and charges prepaid to either Shipper or Transporter at the place designated. Routine communications shall be considered as duly delivered when mailed by ordinary mail. Normal operating instructions can be made by telephone. Unless changed, the addresses of the parties are as follows: NORTHWEST PIPELINE CORPORATION P. O. BOX 58900 SALT LAKE CITY, UTAH 84158-0900 Statements: Attention: T&E Accounting (MS-10496) Payments: Attention: Cash Control (MS-10491) Contractual Notices: Attention: Marketing (MS-10361) Other Notices: Attention: T&E Management (MS-10334) Notices & Statements: NORTHWEST NATURAL GAS COMPANY 220 N. W. Second Avenue Portland, Oregon 97209 Attention: Gas Supply Department ARTICLE VII - OTHER OPERATING PROVISIONS 7.1 Pursuant to Section 5.3 of the General Transportation Terms and Conditions of Transporter's FERC Gas Tariff, Original Volume No. 1-A, Shipper shall make payments to Transporter hereunder by wire transfer of immediately available funds by the due date set forth herein. Such funds shall be wire transferred to the First Interstate Bank of Utah located in Salt Lake City, Utah for Transporter's account No. 02-00986-8. -4- ARTICLE VIII - ADJUSTMENTS TO GENERAL TERMS AND CONDITIONS 8.1 Certain of the General Transportation Terms and Conditions are to be adjusted for the purpose of this Agreement, as specified below: None. ARTICLE IX - CANCELLATION OF PRIOR AGREEMENT(S) 9.1 When this Agreement takes effect, it supersedes, cancels and terminates the following agreement(s): None. ARTICLE X - SUCCESSORS AND ASSIGNS 10.1 This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. No assignment or transfer by either party hereunder shall be made without written approval of the other party. Such approval shall not be unreasonably withheld. As between the parties hereto, such assignment shall become effective on the first day of the month following written notice that such assignment has been effectuated. IN WITNESS WHEREOF, the parties hereto have executed this agreement as of the day and year first above set forth. NORTHWEST NATURAL GAS COMPANY NORTHWEST PIPELINE CORPORATION (Shipper) (Transporter) By: /s/ Dwayne L. Foley By: /s/ Tim J. Hausler ----------------------- ------------------------ Title: Vice President, Title: Vice President Gas Supply & Marketing and Pipeline Rel. Customer Services Attest: /s/ C. J. Rue Attest: Karrie L. Hummel ------------------ -------------------- Assistant Secretary -5- EXHIBIT "A" to the TRANSPORTATION AGREEMENT DATED June 29, 1990 between NORTHWEST PIPELINE CORPORATION and NORTHWEST NATURAL GAS COMPANY RECEIPT POINTS Receipt Point Maximum Daily Quantity - ------------- ---------------------- For Each Receipt Point ---------------------- (MMBtus) Opal 50,000 TOTAL MDQ MUST EQUAL TOTAL TRANSPORTATION CONTRACT DEMAND -6- EXHIBIT "B" to the TRANSPORTATION AGREEMENT DATED June 29, 1990 between NORTHWEST PIPELINE CORPORATION and NORTHWEST NATURAL GAS COMPANY DELIVERY POINTS -------------- Delivery Point Maximum Daily Delivery Obligation - -------------- --------------------------------- ("MDDO") For Each Delivery Point ----------------------- (MMBtus) Deer Island 19,000 Battle Ground 100 Gresham 11,000 Oregon City 2,000 Molalla 1,000 Monitor 600 Mt. Angel 1,000 Marion 100 Jefferson/Scio 200 Albany 5,000 North Eugene 2,500 South Eugene 7,500 TOTAL MDDO MUST EQUAL TOTAL TRANSPORTATION CONTRACT DEMAND -7- AMENDMENT THIS AMENDMENT is entered into this 1st day of April 1993, by and between NORTHWEST PIPELINE CORPORATION, hereinafter referred to as "Transporter", and NORTHWEST NATURAL GAS COMPANY, hereinafter referred to as "Shipper". RECITALS: - --------- A. Transporter and Shipper are parties to that certain Firm Transportation Agreement (#F-58) dated June 29, 1990, ("Agreement"). B. Shipper made a valid request to change the receipt points and the delivery points and volumes set forth on Exhibit "A" and Exhibit "B", respectively. Transporter and Shipper desire to amend the Agreement to provide for the change of the receipt points and the delivery points and volumes. AGREEMENT: - ---------- NOW THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties agree as follows: 1. Exhibit "A" of the Agreement shall be deleted in its entirety and the attached Exhibit "A" to this Amendment shall be added to and made a part of the Agreement, effective April 1, 1993. 2. Exhibit "B" of the Agreement shall be deleted in its entirety and the attached Exhibit "B" to this Amendment shall be added to and made a part of the Agreement, effective April 1, 1993. 3. Except as amended herein, the Agreement shall remain in full force and effect. 4. This Amendment shall be binding upon and inure to the benefit of the parties hereto and any successors or assigns of such parties. 5. This Amendment may be executed in any number of counterparts. IN WITNESS WHEREOF, the parties hereto have executed two duplicate original copies of this Amendment as of the date and year first written above. NORTHWEST PIPELINE CORPORATION By: /s/ Joe H. Fields ------------------------- Attorney-In-Fact ATTEST: NORTHWEST NATURAL GAS COMPANY By: By: /s/ Randolph S. Friedman ------------------- ------------------------ Title: Title: Manager, Gas Acquisition -------------- and Pipeline Relations -8- EXHIBIT "A" to the FIRM TRANSPORTATION AGREEMENT Dated June 29, 1990 (As Amended Effective April 1, 1993) between NORTHWEST PIPELINE CORPORATION and NORTHWEST NATURAL GAS COMPANY RECEIPT POINTS -------------- Receipt Point Maximum Daily Quantity - ------------- ---------------------- For Each Receipt Point ---------------------- (MMBtus) Opal 45,000 Redwash 5,000 TOTAL MDQ MUST EQUAL TOTAL TRANSPORTATION CONTRACT DEMAND -9- EXHIBIT "B" to the FIRM TRANSPORTATION AGREEMENT Dated June 29, 1990 (As Amended Effective April 1, 1993) between NORTHWEST PIPELINE CORPORATION and NORTHWEST NATURAL GAS COMPANY DELIVERY POINTS --------------- Delivery Point Maximum Daily Delivery Obligation - -------------- --------------------------------- ("MDDO") For Each Delivery Point ----------------------- (MMBtus) KB Pipeline Meter Station 19,000 Battle Ground 100 Gresham 11,000 Oregon City 2,000 Molalla 1,000 Monitor 600 Mt. Angel 1,000 Marion 100 Jefferson/Scio 200 Albany 5,000 North Eugene 2,500 South Eugene 7,500 TOTAL MDDO MUST EQUAL TOTAL TRANSPORTATION CONTRACT DEMAND -10- AMENDMENT THIS AMENDMENT is entered into this 2nd day of April 1993, by and between NORTHWEST PIPELINE CORPORATION, hereinafter referred to as "Transporter", and NORTHWEST NATURAL GAS COMPANY, hereinafter referred to as "Shipper". RECITALS: - --------- A. Transporter and Shipper are parties to that certain Firm Transportation Agreement (#F-58) dated June 29, 1990, ("Agreement"). B. Shipper made a valid request to change the receipt points and volumes set forth on Exhibit "A". Transporter and Shipper desire to amend the Agreement to provide for the change of the receipt points and volumes. AGREEMENT: - ---------- NOW THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties agree as follows: 1. Exhibit "A" of the Agreement shall be deleted in its entirety and the attached Exhibit "A" to this Amendment shall be added to and made a part of the Agreement, effective April 4, 1993. 2. Except as amended herein, the Agreement shall remain in full force and effect. 3. This Amendment shall be binding upon and inure to the benefit of the parties hereto and any successors or assigns of such parties. 4. This Amendment may be executed in any number of counterparts. IN WITNESS WHEREOF, the parties hereto have executed two duplicate original copies of this Amendment as of the date and year first written above. NORTHWEST PIPELINE CORPORATION By: /s/ Joe H. Fields -------------------- Attorney-In-Fact ATTEST: NORTHWEST NATURAL GAS COMPANY By: By: /s/ Randolph S. Friedman -------------------- ------------------------- Title: Title: Manager, Gas Acquisition --------------- and Pipeline Relations -11- EXHIBIT "A" to the FIRM TRANSPORTATION AGREEMENT Dated June 29, 1990 (As Amended Effective April 4, 1993) between NORTHWEST PIPELINE CORPORATION and NORTHWEST NATURAL GAS COMPANY RECEIPT POINTS --------------- Receipt Point Maximum Daily Quantity - ------------- ---------------------- For Each Receipt Point ---------------------- (MMBtus) Opal 42,800 Redwash 5,000 Barrett 2,200 TOTAL MDQ MUST EQUAL TOTAL TRANSPORTATION CONTRACT DEMAND -12- AMENDMENT THIS AMENDMENT is entered into this 28th day of April 1993, by and between NORTHWEST PIPELINE CORPORATION, hereinafter referred to as "Transporter", and NORTHWEST NATURAL GAS COMPANY, hereinafter referred to as "Shipper". RECITALS: - --------- A. Transporter and Shipper are parties to that certain Firm Transportation Agreement (#F-58) dated June 29, 1990, ("Agreement"). B. Shipper made a valid request to change the receipt points and volumes set forth on Exhibit "A". Transporter and Shipper desire to amend the Agreement to provide for the change of the receipt point(s) and volume(s). AGREEMENT: - ---------- NOW THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties agree as follows: 1. Exhibit "A" of the Agreement shall be deleted in its entirety and the attached Exhibit "A" to this Amendment shall be added to and made a part of the Agreement, effective May 1, 1993. 2. Except as amended herein, the Agreement shall remain in full force and effect. 3. This Amendment shall be binding upon and inure to the benefit of the parties hereto and any successors or assigns of such parties. 4. This Amendment may be executed in any number of counterparts. IN WITNESS WHEREOF, the parties hereto have executed two duplicate original copies of this Amendment as of the date and year first written above. NORTHWEST PIPELINE CORPORATION By: /s/ Joe H. Fields ---------------------- Attorney-In-Fact ATTEST: NORTHWEST NATURAL GAS COMPANY By: By: /s/ Randolph S. Friedman ----------------- ------------------------- Title: Title: Manager, Gas Acquisition ------------ and Pipeline Relations -13- EXHIBIT "A" to the FIRM TRANSPORTATION AGREEMENT Dated June 29, 1990 (As Amended Effective May 1, 1993) between NORTHWEST PIPELINE CORPORATION and NORTHWEST NATURAL GAS COMPANY RECEIPT POINTS -------------- Receipt Point Maximum Daily Quantity - ------------- ---------------------- (MMBtus) Opal 32,800 Redwash 5,000 Barrett 2,200 Green River Gathering 5,000 Dragon Trail 5,000 TOTAL MDQ MUST EQUAL TOTAL TRANSPORTATION CONTRACT DEMAND -14- EX-10 7 FIRM TRANSPORTATION SERVICE AGREEMENT Exhibit (10j.(2)) FIRM TRANSPORTATION SERVICE AGREEMENT THIS AGREEMENT is made and entered into this 10th day of November, 1993, by and between PACIFIC GAS TRANSMISSION COMPANY, a California corporation (hereinafter referred to as "PGT"), and NORTHWEST NATURAL GAS COMPANY, a corporation existing under the laws of the State of Oregon, (hereinafter referred to as "Shipper"). WHEREAS, PGT owns and operates a natural gas pipeline transmission system which extends from a point of interconnection with the pipeline facilities of Alberta Natural Gas Company Ltd. (ANG) at the International Boundary near Kingsgate, British Columbia, through the states of Idaho, Washington and Oregon to a point of interconnection with Pacific Gas and Electric Company at the Oregon-California border near Malin, Oregon; and WHEREAS, Shipper desires PGT, on a firm basis, to transport certain quantities of natural gas from Kingsgate, British Columbia and/or from Stanfield, Oregon to various delivery points as specified in Exhibit "A" of this Agreement; and WHEREAS, Shipper has requested PGT to convert 100% of its Section 7(C) Firm Transportation Service Agreement dated April 25, 1991 (for service under Rate Schedule T-3) to Part 284 (for service under Rate Schedule FTS-1) in accordance with the Terms and Conditions of the FERC's Order at Docket No. RS 92-46; and, WHEREAS, PGT is willing to transport certain quantities of natural gas for shipper, on a firm basis, NOW, THEREFORE, the parties agree as follows: I Governmental Authority 1.1 This Firm Transportation Agreement ("Agreement") is made pursuant to the regulations of the Federal Energy Regulatory Commission (FERC) contained in 18 CFR Part 284, as amended from time to time. 1.2 This Agreement is subject to all valid legislation with respect to the subject matters hereof, either state or federal, and to all valid present and future decisions, orders, rules, regulations and ordinances of all duly constituted governmental authorities having jurisdiction. I Governmental Authority (continued) 1.3 Shipper shall reimburse PGT for any and all filing fees incurred by PGT in seeking governmental authorization for the initiation, extension, or termination of service under this Agreement and Rate Schedule FTS-1. Shipper shall reimburse PGT for such fees at PGT's designated office within ten (10) days of receipt of notice from PGT that such fees are due and payable. Additionally, Shipper shall reimburse PGT for any and all penalty fees or fines assessed PGT caused by the negligence of Shipper in not obtaining all proper Canadian and domestic import/export licenses, surety bonds or any other documents and approvals related to the Canadian exportation and subsequent domestic importation of natural gas transported by PGT hereunder. II Quantity of Gas and Priority of Service 2.1 Subject to the terms and provision of this Agreement and PGT's Transportation General Terms and Conditions contained in PGT's FERC Gas Tariff First Revised Volume No. 1-A applicable to Rate Schedule FTS-1, daily receipts of gas by PGT from Shipper at the point(s) of receipt shall be equal to daily deliveries of gas by PGT to Shipper at the point(s) of delivery; provided, however, Shipper shall deliver to PGT an additional quantity of natural gas at the point(s) of receipt as compressor station fuel, line loss and unaccounted for gas as specified in the Statement of Rates and Charges of PGT's FERC Gas Tariff First Revised Volume No. 1-A. Any limitations of the quantities to be received from each point of receipt and/or delivered to each point of delivery shall be as specified on the Exhibit A attached hereto. 2.2 The maximum quantities of gas to be delivered by PGT for Shipper's account at the point(s) of delivery are set forth in Exhibit A. 2.3 In providing service to its existing or new customers, PGT will use the priorities of service specified in Paragraph 18 of PGT's Transportation General Terms and Conditions on file with the FERC. 2.4 Prior to initiation of service, Shipper shall provide PGT with any information required by the FERC, as well as all information identified in PGT's Transportation General Terms and Conditions applicable to Rate Schedule FTS-1. III Terms of Agreement 3.1 This Agreement shall become effective November 1, 1993, and shall continue in full force and effect until October 31, 2023. Thereafter, this Agreement shall continue in effect from year to year unless either party gives twelve (12) months prior written notice of desire to terminate this Agreement. IV Points of Receipt and Delivery 4.1 The primary point of receipt of gas deliveries to PGT is as designated in Exhibit A, attached hereto. 4.2 The primary point of delivery of gas to Shipper is as designated in Exhibit A, attached hereto. 4.3 Shipper shall deliver or cause to be delivered to PGT the gas to be transported hereunder at pressures sufficient to deliver such gas into PGT's system at the point(s) of receipt. PGT shall deliver the gas to be transported hereunder to or for the account of Shipper at the pressures existing in PGT's system at the point(s) of delivery. 4.4 Pursuant to Paragraph 29 of PGT's Transportation General Terms and Conditions, Shipper may designate other receipt and/or delivery points as secondary receipt or delivery points. V Operating Procedure 5.1 Shipper shall conform to the operating procedures set forth in PGT's Transportation General Terms and Conditions. 5.2 Nothing in Section 5.1 shall compel PGT to transport gas pursuant to Shipper's request on any given day. PGT shall have the right to interrupt or curtail the transport of gas for the account of Shipper pursuant to PGT's Transportation General Terms and Conditions applicable to Rate Schedule FTS-1. VI Rate(s), Rate Schedules, and General Terms and Conditions of Service 6.1 Shipper shall pay PGT each month for services rendered pursuant to this Agreement in accordance with PGT's Rate Schedule FTS-1, or superseding rate schedule(s), on file with and subject to the jurisdiction of FERC. 6.2 Shipper shall compensate PGT each month for compressor station fuel, line loss and other unaccounted for gas associated with this transportation service provided herein in accordance with PGT's Rate Schedule FTS-1, or superseding rate schedule(s), on file with and subject to the jurisdiction of the FERC. 6.3 This Agreement in all respects shall be and remains subject to the applicable provisions of Rate Schedule FTS-1, or superseding rate schedule(s) and of the applicable Transportation General Terms and Conditions of PGT's FERC Gas Tariff First Revised Volume No. 1-A on file with the FERC, all of which are by this reference made a part hereof. 6.4 PGT shall have the unilateral right from time to time to propose and file with FERC such changes in the rates and charges applicable to transportation services pursuant to this Agreement, the rate schedule(s) under which this service is hereunder provided, or any provisions of PGT's Transportation General Terms and Conditions applicable to such services. Shipper shall have the right to protest any such changes proposed by PGT and to exercise any other rights that Shipper may have with respect thereto. VII Miscellaneous 7.1 This Agreement shall be interpreted according to the laws of the State of California. 7.2 Shipper agrees to indemnify and hold PGT harmless for refusal to transport gas hereunder in the event any upstream or downstream transporter fails to receive or deliver gas as contemplated by this Agreement. 7.3 Unless herein provided to the contrary, any notice called for in this Agreement shall be in writing and shall be considered as having been given if delivered by registered mail or facsimile with all postage or charges prepaid, to either PGT or Shipper at the place designated below. Routine communications, including monthly statements and payment, shall be considered as duly delivered when received by ordinary mail. Unless changed, the addresses of the parties are as follows: "PGT" PACIFIC GAS TRANSMISSION COMPANY 160 Spear Street Room 1900 San Francisco, California 94105-1570 Attention: President & CEO "SHIPPER" Northwest Natural Gas Company 220 N. W. Second Avenue Portland, OR 97209 Attention: Manager, Gas Acquisition and Pipeline Relations 7.4 A waiver by either party of any one or more defaults by the other hereunder shall not operate as a waiver of any future default or defaults, whether of a like or of a different character. VII Miscellaneous 7.5 This Agreement may only be amended by an instrument in writing executed by both parties hereto. 7.6 Nothing in this Agreement shall be deemed to create any rights or obligations between the parties hereto after the expiration of the term set forth herein, except that termination of this Agreement shall not relieve either party of the obligation to correct any quantity imbalances or Shipper of the obligation to pay any amounts due hereunder to PGT. 7.7 Exhibit(s) A and C attached hereto is/are incorporated herein by reference and made a part hereof for all purposes. IN WITNESS WHEREOF the parties hereto have caused this Agreement to be executed as of the day and year first above written. PACIFIC GAS TRANSMISSION COMPANY By: /s/ Stephen Reynolds ---------------------------- Title: President & CEO Date: 11/10/93 NORTHWEST NATURAL GAS COMPANY By: /s/ Dwayne L. Foley ---------------------------- Title: Senior Vice President Date: 11/3/93 EXHIBIT A To the FIRM TRANSPORTATION SERVICE AGREEMENT Dated Nov. 1, 1993 Between PACIFIC GAS TRANSMISSION COMPANY And NORTHWEST NATURAL GAS COMPANY Receipt Delivery Maximum Daily Quantity Point Point (Delivered) MMBtu/d (Primary) Winter Summer Kingsgate, BC Stanfield Exchange, 46,549 30,000 OR EXHIBIT C To the FIRM TRANSPORTATION SERVICE AGREEMENT Dated _______________ Between PACIFIC GAS TRANSMISSION COMPANY And _________________________ Type of Replacement Service: Replacement Shipper: Receipt Point: Delivery Point: Maximum Daily Quantity: Commencement of Credit: Termination of Credit: Level of Credit: _____ percent of the maximum rate defined as applicable for service under Rate Schedule FTS-1 Other Terms and Conditions: 1) 2) 3) EX-11 8 COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 NORTHWEST NATURAL GAS COMPANY Statement Re: Computation of Per Share Earnings (Thousands, except per share amounts) (Unaudited) 12 Months Ended December 31 -------------------------- 1993 1992 1991 ---- ---- ---- Earnings Applicable to Common Stock $34,159 $13,215 $11,784 Preference Stock Dividends 155 168 178 Debenture Interest Less Taxes 572 598 675 ------- ------- ------- Net Income Available for Fully-Diluted Common Stock $34,886 $13,981 $12,637 ======= ======= ======= Average Common Shares Outstanding 13,074 11,909 11,698 Stock Options 24 25 32 Convertible Preference Stock 108 116 123 Convertible Debentures 433 446 452 ------- ------ ------ Fully-Diluted Common Shares 13,639 12,496 12,305 ======= ====== ====== Fully-Diluted Earnings Per Share of Common Stock $2.56 $1.12 $1.03 ===== ===== ===== Note: Primary earnings per share are computed on a weighted daily average number of common shares outstanding each year. Outstanding stock options are common stock equivalents but are excluded from primary earnings per share computations due to immateriality. EX-12 9 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12 Northwest Natural Gas Company Computation of Ratio of Earnings to Fixed Charges January 1, 1989 - December 31, 1993 ($000)
----------Year Ended December 31---------- 1989 1990 1991 1992 1993 ---- ---- ---- ---- ---- Fixed Charges, as defined: Interest on Long-Term Debt $19,344 $22,244 $21,977 $23,001 $22,578 Other Interest 4,011 2,853 4,266 3,223 1,906 Amortization of Debt Discount and Expense 401 363 348 511 775 Interest Portion of Rentals 1,235 1,546 1,485 1,439 1,701 ------- ------- ------- ------- ------- Total Fixed Charges, as defined $24,991 $27,006 $28,076 $28,174 $26,960 ======= ======= ======= ======= ======= Earnings, as defined: Net Income $28,420 $30,724 $14,377 $15,775 $37,647 Taxes on Income 15,366 13,629 2,321 6,951 22,096 Fixed Charges, as above 24,991 27,006 28,076 28,174 26,960 ------- ------- ------- ------- ------- Total Earnings, as defined $68,777 $71,359 $44,774 $50,900 $86,703 ======= ======= ======= ======= ======= Ratio of Earnings to Fixed Charges 2.75 2.64 1.59 1.81 3.22 ==== ==== ==== ==== ====
EX-23 10 INDEPENDENT AUDITORS' CONSENT DELOITTE & TOUCHE - ---------------------------------------------------------------- 3900 US Bancorp Tower Telephone: (503) 222-1341 111 SW Fifth Avenue Facsimile: (503) 224-2172 Portland, Oregon 97204-3698 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 33-34724, Post-Effective Amendment No. 1 to Registration Statement No. 2-76276, and Post-Effective Amendments No. 2 to Registration Statement Nos. 2-77195 and 33-19354 on Form S-8 and in Registration Statements Nos. 33-44827, 33-64014, and 33-51271, and Post-Effective Amendments No. 1 to Registration Statements Nos. 33-1304 and 33-20384 on Form S-3 of our report dated February 25, 1994 (which expresses an unqualified opinion and includes an explanatory paragraph relating to the change in the Company's method of accounting for income taxes and other postretirement benefits) appearing in this Annual Report on Form 10-K of Northwest Natural Gas Company for the year ended December 31, 1993. /s/ Deloitte & Touche DELOITTE & TOUCHE Portland, Oregon March 28, 1994 -----END PRIVACY-ENHANCED MESSAGE-----